Category Archives: Tax Info for Homeowners

Reminders For This Tax Season

Fried-ClockHave you set up your appointment to have taxes done?

The following are large items that are already set in law that you can count on (literally and figuratively) for this tax season. Don’t forget about income limitations and phase outs.

Child Credits.

For each qualifying child under age 17 knocks up to $1,000 from your tax bill.

College Education.

Two big credits are available.  The American Opportunity Credit can reduce your tax bill by up to $2,500 per eligible student or up to $2,000 through the Lifetime Learning Credit.

0% Capital Gains Rate.

This capital gains rate is available to all taxpayers in the 10% and 15% tax brackets.  Married taxpayers qualify for the 0% rate if their taxable income is $73,800 or less, for single taxpayers $36,900 or less, and head of household is $49,400.  To see the 2015 Tax Brackets.

Tax Free Gains on Home Sales.

Married couples can exclude up to $500,000 from their gain from their income from the sale of their home, for single taxpayers the maximum exclusion is $250,000.  Ownership and occupancy rules apply.

Energy Saving Credits.

You can claim a credit for up to 30% of the cost of buying and installing solar panels, solar water heaters, geothermal heat pumps and small wind energy systems.

DID YOU KNOW that your vacation home can be a tax deduction?

uh oh signJust make sure you don’t use it for client or business entertainment.  

The Bradford Tax Institute had a great piece about how you can actually deduct your vacation home – as long as you don’t break the rule.  The rule is – it can’t be used for your business client’s (or their family’s) entertainment.

BTI used the scenario – Man owns three-acre beachfront property.  While he is there, he met with his investment advisors, current and prospective clients and met with salesmen, trainees and other partners in his business.

The costs associated with these meetings are all legitimate deductions and valid business activities, so where did he go wrong?

He permitted his clients to bring their family to the property, while they were in meetings. The court ruled that since the *family members* did not attend the business meetings – that meant they were entertaining themselves, such as playing on the beach or going out at night and partying.

As a result, the court ruled that the beach home was a NONDEDUCTIBLE ENTERTAINMENT FACILITY.  (See http://www.law.cornell.edu/uscode/text/26/274 )

The Bradford Tax Institute used the following example:  If you use your vacation home 11 days for business meetings with your employees (or partners, etc.), 14 days for business lodging, and 8 days for personal purposes, that gives you 76% business use and 24% personal use.  Formula:  25 business days (M-F) divided by 33 days = 76%.  You can deduct 76% of the operating costs and depreciation of your vacation home.

 

Story source:  Bradford Tax Institute Tax Reduction Letter

 

Flash – 2013 Short Sellers Get State Tax Relief

 

Franchise Tax Board, State of CAFranchise Tax Board of California 

We updated our website to include information about mortgage debt relief for taxpayers who sold their principal residences through a short sale in 2013.

According to an Internal Revenue Service (IRS) Information Letter dated September 19, 2013, the IRS determined that California taxpayers who sell their principal residences for less than what is owed on the home as part of a short sale, in which the lender agreed to the short sale, do not incur cancellation of indebtedness income. Instead, the amount of forgiven debt is included in the amount realized in determining gain on the sale of that residence.

The IRS guidance is limited to California short sales only. The IRS guidance did not specifically address other types of real estate transactions such as non-judicial foreclosures and mortgage loan modifications.

We will update information and FAQs on our website soon. For more details and updates, please go to ftb.ca.gov and search for mortgage forgiveness debt relief.

 

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Interest Rates Remain the Same for the First Quarter of 2014

For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Larger IRS

 

IR-2013-96, Dec. 9, 2013

WASHINGTON ― The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2014.  The rates will be:

  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during Oct. 2013 to take effect Nov. 1, 2013, based on daily compounding.

Revenue Ruling 2013-25 announcing the quarterly rates will be published  in Internal Revenue Bulletin 2013-52, dated Dec. 23, 2013.

Pay-It-Forward Tax-Saving Moves for 2013!

What Tax Moves Can You Make In December?

Identify and pre-pay deductible expenditures

In our last “tax move” post, we suggested taxpayers look at all the options they have for lowering their tax bill due in 2014.  Here are some more possibilities:

January house payment – Prepaying your mortgage will give you 12 months of deductible interest.  The same for a vacation home. Continue reading

Tax Benefit If You Rent to Relatives

For Rent signDid you know you can save taxes when you rent to relatives?

Want renters you know, trust, like and just happen to be related?  No problem.  In fact, it is actually a pretty good idea.

According to the Bradford Tax Institute, renting is still a business agreement – even if your tenant is your college-age child or your retired in-laws.  As with every business agreement, this rental requires a clear understanding of what is and isn’t permitted by law. So set down the ground rules, then you can relax.

The Core to a Safe Rental Strategy

Here’s a good tip to remember when renting to relatives (it will help you escape the rental triple whammy): Charge a well-documented and market-supported fair rent to your relatives.

That way, your rental property will not get misconstrued as a second home.

Here are a few ways to prove the rent you charge is fair:

  • Print listings for similar rentals in the same neighborhood from craigslist.com
  • Cut out comparable rental ads from local newspaper want ads
  • Get letters from property managers
  • Obtain an independent appraisal

To recap: Be sure to charge your relatives fair rent. Keep your relationship in good standing and your tax deductions on solid ground

Source: Tax Reduction Letter.

 

ATTN: California Taxpayers – Head of Household

Newest update on the ‘Head of Household’ Audit Letters

Sacramento – The Franchise Tax Board (FTB) announced mailing more than 100,000 audit letters to taxpayers to verify their “Head of Household”(HOH) filing status on their 2012 state tax return. We are encouraging all of our clients – once the questionnaire is received – to call for an appointment to come in at (619) 589-8680.

Taxpayers who do not qualify will have their tax reassessed at either the single or married-filing-separate filing status. FTB assessed $26 million in additional tax to the nearly 38,000 taxpayers who used this status last year and did not meet its requirements.  Continue reading

Thinking of Selling Your Home? What About Taxes?

Will You Owe Taxes When You Sell Your Home?

Visit our Child Care Tax Specialists site and read more about what a family child care provider faces in the decision to sell their home by way of taxes. One tax you can probably avoid and another you cannot.  This will give you the high points, but it is always best to speak with your tax preparer to get the latest on potential tax impacts.

Click here to read about the tax that you probably can avoid.

When Chores Don’t Count

There are definitely tax benefits to hiring your own children (or spouse), however, the IRS will scrutinize family child care providers who do.

Why? Because providers “may be tempted to gain a tax benefit without following the proper rules”.¹  Rules?  What Rules? Continue reading

UPDATE: Fire Fee & State Responsibility Area Map Changes

Are You Affected by the State Responsibility Area Maps Update? Homeowners statewide will no longer receive refunds.

Back on May 28, we wrote that the Court ruled the $150 Fire Prevention Fee assessed by the California State Board of Equalization (BOE) against each structure in a “state responsibility area” is no longer deductible as a tax under IRC §164. Continue reading

Federal Income Tax Changes Summary for 2012

The Franchise Tax Board of California has provided their report of the Federal Income Tax Changes Summary for 2012.  60 pages of changes.  The FTB 2012 summary explains new federal laws, along with the effective dates, and the corresponding California law, if any. It includes an explanation of any changes made in response to the new federal law, and the impact on California revenue if California conforms to the federal changes.

Are You Deducting All of Your Outdoor Expenses?

In Tom Copeland’s “Taking Care of Business”, he touches on what qualifies as outdoor deductions for child care provider businesses.  Bottom line?  Deduct all the expenses that are designated as “ordinary and necessary” to your business, especially if it is used 100% for your business.   But what about those expenses that are used for business and personal purposes?  They may be deductible, in part, so download our Time-Space Percentage Crib Sheet so you can keep track of those receipts!  Download Crib Sheet here.

Advantages to having a home-based business

The United States tax law encourages business activity by offering many tax benefits to entrepreneurs. Specifically, the tax code provides advantages to small business owners, depending on how you choose to organize your business. Running a home business has its advantages, as home-based businesses qualify for several additional deductions and tax credits. By maximizing these deductions, the home business owner can reduce his tax liability. Continue reading

9 Easy Mistakes Home Owners Make on Their Taxes

As you calculate your tax returns, consider each home tax deduction and credit you are — and are not — entitled to. Running afoul of any of these 9 home-related tax mistakes — which tax pros say are especially common — can cost you money or draw the IRS to your doorstep.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount. Continue reading