Kent L Brown CPA

09/08/2022

Issue Number: Tax Tip 2022-138
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Know what’s deductible after buying that first home, sweet home
Making the dream of owning a home a reality is a big step for many people. Whether a fixer-upper or dream home, homeownership is a milestone that can come with a learning curve. First-time homeowners should make themselves familiar with authorized deductions, programs that can assist with home ownership and the use of housing allowances that can be beneficial.

When it comes to home ownership, the IRS considers a home to be a house, condominium, cooperative apartment, mobile home, houseboat or house trailer that contains a sleeping space, toilet and cooking facilities.

Most home buyers take out a mortgage loan to buy their home and then make monthly payments to the mortgage holder. This payment may include several costs of owning a home. The only costs the homeowner can deduct are:
• state and local real estate taxes, subject to the $10,000 limit
• home mortgage interest, within the allowed limits
• mortgage insurance premiums
Taxpayers must file Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Income Tax Return for Seniors, and itemize their deductions to deduct home ownership expenses. However, taxpayers can’t take the standard deduction if they itemize.

Non-deductible payments and expenses
Homeowners can’t deduct any of the following items.
• Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
• The amount applied to reduce the principal of the mortgage
• Wages you pay for domestic help
• Depreciation
• The cost of utilities, such as gas, electricity, or water
• Most settlement or closing costs
• Forfeited deposits, down payments, or earnest money
• Internet or Wi-Fi system or service
• Homeowners’ association fees, condominium association fees, or common charges
• Home repairs
Mortgage interest credit
The mortgage interest credit is meant to help individuals with lower income afford home ownership. Those who qualify can claim the credit each year for part of the home mortgage interest paid.
A homeowner may be eligible for the credit if they were issued a qualified Mortgage Credit Certificate from their state or local government. An MCC is issued only for a new mortgage for the purchase of a main home. The MCC will show the certificate credit rate the homeowner will use to figure their credit. It will also show the certified indebtedness amount and only the interest on that amount qualifies for the credit.
Homeowners Assistance Fund
The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying certain expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and also displacements of homeowners experiencing financial hardship after January 21, 2020.

Minister's or military housing allowance
Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don’t have to reduce their deductions based on the allowance.

More information:
Publication 530, Tax Information for Homeowners
Publication 936, Home Mortgage Interest Deduction

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Tax Tip 2022-138, September 8, 2022 — Making the dream of owning a home a reality is a big step for many people. Whether a fixer-upper or dream home, homeownership is a milestone that can come with a learning curve. First-time homeowners should make themselves familiar with authorized deductions, ...

03/23/2012

Deducting Charitable Contributions: Eight Essentials
IRS Tax Tip 2012-57

Donations made to qualified organizations may help reduce the amount of tax you pay.

The IRS has eight essential tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given.
7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining the value of donations, refer to Publication 561, Determining the Value of Donated Property.

02/29/2012

Mortgage Debt Forgiveness: 10 Key Points

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit www.irs.gov. IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.

You can also use the Interactive Tax Assistant available on the IRS website to determine if your cancelled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.

Finally, you may obtain copies of IRS publications and forms either by downloading them from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

02/14/2012

The Child Tax Credit: 11 Key Points

The Child Tax Credit is available to eligible taxpayers with qualifying children under age 17. The IRS would like you to know these eleven facts about the child tax credit.

1. Amount With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under age 17.

2. Qualification A qualifying child for this credit is someone who meets the qualifying criteria of seven tests: age, relationship, support, dependent, joint return, citizenship and residence.

3. Age test To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2011.

4. Relationship test To claim a child for purposes of the Child Tax Credit, the child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

5. Support test In order to claim a child for this credit, the child must not have provided more than half of his/her own support.

6. Dependent test You must claim the child as a dependent on your federal tax return.

7. Joint return test The qualifying child can not file a joint return for the year (or files it only as a claim for refund).

8. Citizenship test To meet the citizenship test, the child must be a U.S. citizen, U.S. national or U.S. resident alien.

9. Residence test The child must have lived with you for more than half of 2011. There are some exceptions to the residence test, found in IRS Publication 972, Child Tax Credit.

10. Limitations The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies by filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax and any alternative minimum tax you owe.

11. Additional Child Tax Credit If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

02/04/2012

The IRS has a new form this year. If your business takes credit cards or receives payments through PayPal, you will be receiving Form 1099-K. It may duplicate information also reported on Form 1099-MISC.

02/03/2012

Form 1099's and Form W-2's should already be mailed to the recipients.

Next up ...

Form 1096 with associated Form 1099's should be filed with the IRS by Feb 29th.

Form W-3 with associated Form W-2's should be filed with the Social Security Administration by Feb 29th.

On deck ....

Corporate tax returns (Forms 1120 or 1120S with K1's) and Partnership returns (Forms 1065 with K-1's) are due Mar 15th.

12/18/2011

Tax time is just around the corner ... Do you have any last minute tax planning questions? If so, now is the time!!!

12/11/2011

Exploring FaceBook use for business ...