Higher stakes for tax treatment of rental real estate

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Help clients manage both the new net investment income tax and passive loss limitations.
BY PHILIP GARRETT PANITZ, ESQ. AND BARBARA LUBIN, ESQ.
DECEMBER 2013

RentalsThe Health Care and Education Reconciliation Act of 2010 (Reconciliation Act), P.L. 111-152, imposes an additional 3.8% tax on net investment income, which includes income from common financial investments and from passive trade or business activities, including real estate rentals.

Starting in 2013, this tax raises the stakes for taxpayers pursuing real estate activities, particularly rentals. It increases potential financial downsides to pursuing passive activities or activities that the IRS may deem passive under Sec. 469. If the passive activity operates at a net loss for the year, the losses in excess of income are generally not currently deductible (deferred), and if the activity operates at a net gain, the profit can be hit with the additional 3.8% tax. Consequently, meeting the tests for qualifying as a real estate professional and material participation can be doubly important. Continue Reading →

Good news for owners of smaller residential rental properties

Real Estate Tax Talk

Stephen Fishman Contributor
Sep 30, 2013

Last week’s column (“IRS finally provides guidance on building repairs vs. improvements“) explained that the IRS has finally issued the final version of its monumentally long and complex regulations explaining how to deduct improvements and repairs to business property, including commercial buildings and residential rentals.

The final regulations, which take effect Jan. 1, 2014, contain several pleasant surprises for small-business owners, including owners of rental properties. One of these is the “safe harbor for small taxpayers” (IRS Reg. 1.263(a)-3h).

This new reg allows a qualifying taxpayer to elect to not apply the IRS’s complex new improvement regs to an eligible building if the total amount paid during the year for repairs, maintenance, improvements and similar expenses does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building (usually, its cost). Continue Reading →

Best Tax Practices for Small Businesses

Webcpa News

AUGUST 22, 2013

BY DONALD WILLIAMSON AND DAVID KAUTTER

 The Internal Revenue Service has sent letters to thousands of small business owners recently, questioning whether they underpaid their taxes last year.

Titled “Notification of Possible Income Underreporting,” the letters were mailed to small employers this summer requesting that they review and confirm that they accurately reported their income on their 2012 tax returns.

In response to this action by the IRS, American University professors Donald Williamson and David Kautter have created a list of “Tax Best Practices for Small Businesses,” a checklist designed to help small business entrepreneurs stay up-to-date on all tax related issues, and away from the scrutiny of the IRS.

Continue Reading →

Roth IRAs: You Wanted to Know

SmartMoney
FEBRUARY 5, 2013

Should you convert to a Roth? How do you convert? Bill Bischoff answers your questions.

 If we had a dollar — make that $10 — for every reader e-mail we’ve received about the Roth IRA, we’d be retired in Hawaii instead of working in an office in New York City. Should I convert? How do I convert? Can I open one? And those are just the simple questions.

So we gave a stack of them to accountant Bill Bischoff, who wore his copy of the tax code raw looking up the detailed replies. But before we get to that, here’s a brief rundown on the Roth IRA.

Roth IRAs are a terrific tax break, especially for individuals previously shut out of the deductible IRA game because their incomes were too high. Here’s why. Unlike traditional IRAs, Roth contributions are nondeductible. But the earnings build up tax-free. And withdrawals are free of federal income tax as long as the account has been open at least five years and you’re age 59 1/2 or older. Continue Reading →

6 Fundamental Tax Tips for Entrepreneurs

BY   April 2, 2013
Entrepeneur

I had lunch with a fellow financial writer the other day. Naturally, the topic turned to taxes. “I almost went out and bought a couple of iPads recently,” my friend told me. “It’s the end of the year, and I thought it’d be a good way to get a write-off.”

“Why didn’t you?” I asked.

“I realized it was a dumb thing to do,” she said. “It’s a mistake to make business decisions based solely on taxes.”

My friend is right. But entrepreneurs who may be shrewd about other financial matters often make mistakes when it comes to their taxes. According to Mike Piper, a CPA who writes about investing at ObliviousInvestor.com, the errors are basic and easy to avoid. “The most common stuff is really mundane,” he says. Follow these simple rules to maximize your money–while staying on the IRS’s good side. Continue Reading →

15 Tax Moves for Right Now

Friday, February 8, 2013

Talk about taking it down to the wire: Even as they were watching the ball drop, Americans still didn’t know what tax policy they’d be facing come April 15. But by the time the smoke cleared after Washington’s fiscal cliff face-off, a new, far-reaching tax law had been approved and signed, with broad consequences for advisors and their clients.

There are other changes in play as well: new Medicare taxes laid out in the federal health care overhaul, the end of the 2% payroll tax holiday, the return of phase-outs for itemized deductions and a higher threshold for writing off medical expenses. Affluent Californians will also face an added state income tax, approved by voters in November under Proposition 30. Continue Reading →

How Low Are U.S. Taxes Compared to Other Countries?

By Derek Thompson

America Tax Rates 100000

No, the U.S. is not a high-tax country. But saying exactly how not-high-tax we are gets a little tricky.

The graph at the top of this article comes from a KPMG report excavated by Henry Blodget. It shows personal tax rates on $100,000 around the world. The U.S. comes in at 55th out of 114.

As for the richest one or two percentiles of earners, we come in at practically the same place: 53rd-highest. Reminder: The fiscal-cliff tax hike kicks in about $100,000 above this level. Continue Reading →

Homeowners and sellers escape ‘fiscal cliff’ with key benefits

latimes.com

The ‘fiscal cliff’ legislation, close to a total win for homeowners and sellers, revived 2 key tax benefits for housing that had expired more than a year ago.

By Kenneth R. Harney

January 13, 2013

WASHINGTON — Although it wasn’t a total win for homeowners and sellers, the patchwork legislation that emerged from the “fiscal cliff” fracas on Capitol Hill came pretty close. In fact, it even reached back and resuscitated two key tax benefits for housing that had expired more than a year ago. Now homeowners will be able to take deductions on their 2012 tax returns that they assumed were no longer available.

Here’s a quick tally sheet on what the new legislation could mean for you as a buyer, seller or owner. Continue Reading →

High Earners Facing First Major Tax Increase in Years

The Wall Street Journal

 January 1, 2013, 9:31 p.m. ET

By LAURA SAUNDERS

The bill approved in Congress to avert the so-called fiscal cliff would bring the first major tax increase on high earners in 20 years.

The bill approved in Congress to avert the fiscal cliff would bring the first major tax increase on high earners in 20 years. Laura Saunders breaks down how new tax increases will impact across different tax brackets.

While leaving income-tax rates in place for most Americans, taxpayers with more than $400,000 in taxable income or couples with $450,000 would see the top marginal tax rate rise to 39.6% in 2013 from 35% in 2012. For income earned below that level, the 2012 rates would be permanently extended.

Continue Reading →

Year-end tax planning: Preparing for the tax cliff

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 BY STEVEN F. HOLUB, CPA
DECEMBER 2012

Rarely has there been such a major difference between the laws in effect in one year and the next. The maximum income tax rates next year could be as high as 43.4% on ordinary income (44.6% if the potential impact of reinstated limitations on itemized deductions is taken into account) and 23.8% on long-term capital gains (or 25% if itemized deduction limitations are factored in). In addition, unless Congress acts, millions of additional taxpayers will be liable for the alternative minimum income tax (AMT) for 2012 because the most recent AMT patch expired at the end of 2011. Further, the current 2% payroll tax holiday is scheduled to expire at the end of this year. Continue Reading →