John Stancil | TaxConnections

31 Aug 2016

Reverse Mortgages—Part Four Of Four

This is the fourth in a series of four articles on the mortgage interest deduction. (Read Part I, Part II, and Part III) Reverse mortgages have become increasingly popular as a vehicle for retired taxpayers to help fund their retirement. It’s hard to watch TV very long without seeing a pitch for reverse mortgages. What are the characteristics of a reverse mortgage, what are the tax implications, and what do taxpayers need to be aware of in regard to these loans? These are sometimes referred to as lifetime mortgages or home equity conversion mortgages (HECM).

Written by John Stancil | Posted in Individual • Mortgages

26 Aug 2016

Special Mortgage Situations

This is the third in a series of four articles on home mortgage interest. (Read Part I and Part II). There are several special situations relating to deductions for home mortgage interest and other costs. This is a brief overview of each. You should check with your tax professional should any of these apply to you.

Written by John Stancil | Posted in Individual • Mortgages

25 Aug 2016

Beware The “Federal Student Tax”

Scammers are currently targeting students and parents, posing as the IRS and calling to collect payment of the non-existent “Federal Student Tax.” Callers are demanding immediate payment and if refused, threaten to report the student to the police. As this is merely an attempt to separate you from your money, your best response is to hang up. There is no such tax, and the IRS does not utilize such collection methods.

Written by John Stancil | Posted in IRS • Tax Fraud/Evasion/Crimes

24 Aug 2016

What Can Be Deducted As Home Mortgage Interest?

This is the second in a four-part series on home mortgages. (Click here to read Part 1 – The Home Mortgage Interest Deduction) We will examine what can be deducted as home mortgage interest. Interest on the debt is deductible up to the statutory limits on the amounts of deductible debt ($1,000,000 for acquisition debt, $100,000 for home equity debt). Interest on excess debt is personal debt and not deductible. In addition, any amount of home equity or refinanced debt that is not used build, buy, or improve the residence is also classified as non-deductible personal debt.

Written by John Stancil | Posted in Individual • Mortgages

16 Aug 2016

The Home Mortgage Interest Deduction

This is the first in a four-part series about home mortgage interest. One would think that deducting home mortgage interest on your taxes would be a simple, straightforward process. And for most taxpayers, it is. You get your 1098, enter the amount of interest shown on the form, and proceed to the next item. For others, the situation may not be quite so simple.

Written by John Stancil | Posted in Individual • Mortgages

09 Aug 2016

Start-up And Organization Costs

When starting a business, the owners are likely to incur two classes of costs that are not normally encountered in the ongoing operations of the business and should not be included as operating expenses. These are start-up expenditures and organization costs. Each of these are specifically defined and receive special tax treatment.

Written by John Stancil | Posted in Corporate • Income Tax

04 Aug 2016

Vacation Homes and Other Short-Term Rentals

This is the final article in a five-part series on Passive Activities. (To read the previous articles, click the following links: Part 1, Part 2, Part 3, and Part 4.)

You own a beach cottage or a mountain cabin. As much as you would like to live there year-round, it just is not practical, so you rent it out when you are not using it. Is this taxable income? Can you deduct a loss? As with so much in taxes, the short answer is “it depends.”

Written by John Stancil | Posted in Individual • Real Estate

03 Aug 2016

Disposition Of Passive Activity Property

This is part 4 of 5 in a series on Passive Activities. You can read the previous articles here: Part 1, Part 2, and Part 3.

Nothing, it seems, lasts forever, and it is likely there will come a time when you will dispose of your passive rental activity. When this occurs, there are a number of issues that arise. What happens to those suspended losses that were previously denied? What is adjusted basis? What is depreciation recapture? Is there a profit or a loss on the sale? How much tax will I pay?

We will attempt to clarify these issues in this article.

Written by John Stancil | Posted in Individual • Real Estate

02 Aug 2016

Real Estate Professionals And Passive Losses

This is part 3 of 5 in a series on Passive Activities (see Part 1 and Part 2).

Passive loss rules do not apply to real estate professionals. However, the rules for who is a real estate professional for tax purposes are rather specific and the IRS enforces these rules rather strictly. If one is classified as a real estate professional, any losses are treated as ordinary losses and may be deducted against other income sources. Gains are taxed at ordinary income rates, however, income from rental activities is not subject to self-employment tax. However, rent is one of the categories of income that is subject to the Net Investment Income Tax, so there may be an additional 3.8% tax on these profits.

Written by John Stancil | Posted in Individual • Real Estate

01 Aug 2016

Passive Activities—Material Participation

This is part 2 of 5 in a series on Passive Activities. (Read Part 1 here)

Prior to the Tax Reform Act of 1986 (TRA), taxpayers were allowed to deduct non-economic losses from passive activities from wage and investment income. Thus, the infamous term “tax shelter” was commonly used in tax planning. However, in the TRA, tax shelters went the way of income averaging and ACRS depreciation, along with other now defunct aspects of our tax code. While the law did not ban such activities, it severely restricted taxpayers’ ability to deduct losses from what is termed “passive activities.”

Written by John Stancil | Posted in Individual • Real Estate

29 Jul 2016

Passive Activities—What Is A Rental Activity?

This is part 1 of 5 in a series on Passive Activities.

Many things can be classified as rental activities. You rent a car; you book a hotel room; you lease an office machine; you pay for a parking space. All of these fall under the broad category of being rental activities. However, there is a more limited definition of a rental activity for passive loss purposes. If a rental activity is not considered passive, it is treated as a business.

Written by John Stancil | Posted in Individual • Real Estate

19 Jul 2016

Avoid A Tax Surprise On April 15

I recall the first year my wife and I filed a joint return. I was a graduate student with a part-time job. She was fresh out of nursing school and employed at a local hospital. When we prepared our tax return, we owed $400. That was a lot of money in 1970, especially for people in our situation. What happened? We were victims of having multiple sources of income between the two of us and did not have the correct amounts withheld from our incomes.

Written by John Stancil | Posted in Tax Education • Tax Filing • Tax Forms