Friday, January 20, 2012

Deducting Property Taxes

If you have real property, knowing the correct amount to deduct for your Schedule A has always been a challenge. Technically, the only portion of property taxes which can be currently deducted is the ad valorum tax, in other words, the tax assessed based on the assessed value. There are a few other items that may be deductible if the item is to maintain an existing public facility already in service, such as a sidewalk or water tank.

Most property tax bills are totally inadequate when it comes to breaking down the deductible amounts. Items on your tax bill such as Mello-Roos taxes and special assessments are required to be capitalized, just as a capital improvement made to your property. Basically, rather large portions of your tax bill may not be currently deductible. It isn't a matter of if, but when you may take the deduction.

With most states being broke, California especially, beginning this year, CA is considering a website where you can look up the deductible portion of your taxes. With that said and done, it is still possible that CA law may conflict with federal law. Beginning with the 2012 filing season, if deducting real property taxes, you will be required to enter both the street address and the assessor's parcel number right on the schedule A. Stay turned; further information should be forthcoming over the year.

Thursday, January 19, 2012

Time Share Rentals

If you rent out your time share and show a loss, a new ruling (Rundlett vs. Comm. TCH 2011-229) prohibits taking the loss as a passive activity. The ruling stipulated the loss can only be taken as a hobby loss as a miscellaneous itemized deduction on Schedule A, up to the amount of rental income.

Wednesday, January 18, 2012

Standard Mileage Rates

For reporting on your 2011 tax return:

Business mileage: January - June $ 0.51 and for July - December $ 0.555

Charitable Mileage: all of 2011 and for 2012 $ 0.14

Medical Mileage: January - June $ 0.19 and for July - December $ 0.235
Medical Mileage 2012: $ 0.23

All rates are per mile and contemporaneous records are absolutely required without exception!

Tuesday, January 17, 2012

Schedule D Changes

Schedule D will no longer be the friendly 2 page form with 5 worksheets to go through. Beginning with the 2011 filing season, brokerage firms are required to designate your cost basis as well as the net proceeds on Form 1099-B when you sell a security.

There are 3 possible combinations of 1099-B:

  1.  The cost basis is stated
  2.  The cost basis is not provided by the brokerage firm
  3.  You fail to receive a 1099-B

All 1099-B forms with the cost basis stated are then grouped and placed on one new Form 8949, with short term capital gains on page one, and long term capital gains on page two. 1099-B forms with the cost basis not provided will then be grouped and placed on a separate Form 8949 and so forth.

The reality is, if you have some of all 3 of the above combinations, you will have 3 separate Forms 8949. And if you have several sales, you may need more forms. It's going to be an interesting filing season!

Monday, January 16, 2012

Happy New Year and. . .

Happy Tax Filing Season as well. The annual tax seminar I attend each January began a little later this year, and I wanted to have the most recent information to pass on some of the changes which will effect many of us. For the next few days I will highlight some of these changes.

If you look in the archive, you can find where I address the 1099 filing requirements. The copy to the recipient is due on January 31, and the copy for the IRS is due February 29.

Here's the change: Schedules C, E, and F now have two additional line items. The first line specifically asks if you made any payments during the year which require you to file form(s) 1099, and the second line asks if you filed the required forms.

It is important to remember you sign your tax returns under penalty of perjury, and misrepresenting information on a tax return is a felony, not a misdemeanor. Oh yes, did I mention failure to furnish the required information is subject to a $200 fine (per required form), up from $50?