IRS Allocates Unused Low-Income Housing Credits, Rev. Proc. 2024-41 The IRS has published the amounts of unused housing credit carryovers allocated to qualified states under Code Sec. 42(h)(3)(D) for calendar year 2024. The IRS allocates the national pool of unused ...
WA - Municipal annexations announced Beginning January 1, 2025, the following Washington cities have imposed annexations that may impact businesses’ sales and use tax rates: Ellensburg, Kennewick (three annexations), Lacey, Mountlake T...
The 2025 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2025 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
The 2025 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2025 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
The SECURE 2.0 Act (P.L. 117-328) made some retirement-related amounts adjustable for inflation beginning in 2024. These amounts, as adjusted for 2025, include:
The catch up contribution amount for IRA owners who are 50 or older remains $1,000.
The amount of qualified charitable distributions from IRAs that are not includible in gross income is increased from $105,000 to $108,000.
The dollar limit on premiums paid for a qualifying longevity annuity contract (QLAC) is increased from $200,000 to $210,000.
Highlights of Changes for 2025
The contribution limit has increased from $23,000 to $23,500. for employees who take part in:
-401(k),
-403(b),
-most 457 plans, and
-the federal government’s Thrift Savings Plan
The annual limit on contributions to an IRA remains at $7,000. The catch-up contribution limit for individuals aged 50 and over is subject to an annual cost-of-living adjustment beginning in 2024 but remains at $1,000.
The income ranges increased for determining eligibility to make deductible contributions to:
-IRAs,
-Roth IRAs, and
-to claim the Saver's Credit.
Phase-Out Ranges
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.
-For single taxpayers covered by a workplace retirement plan, the phase-out range is $79,000 to $89,000, up from between $77,000 and $87,000.
-For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $126,000 to $146,000, up from between $123,000 and $143,000.
-For an IRA contributor who is not covered by a workplace retirement plan but their spouse is, the phase out is between $236,000 and $246,000, up from between $230,000 and $240,000.
-For a married individual covered by a workplace plan filing a separate return, the phase-out range remains $0 to $10,000.
The phase-out ranges for Roth IRA contributions are:
-$150,000 to $165,000, for singles and heads of household,
-$236,000 to $246,000, for joint filers, and
-$0 to $10,000 for married separate filers.
Finally, the income limit for the Saver' Credit is:
WASHINGTON–With Congress in its lame duck session to close out the remainder of 2024 and with Republicans taking control over both chambers of Congress in the just completed election cycle, no major tax legislation is expected, although there is potential for minor legislation before the year ends.
WASHINGTON–With Congress in its lame duck session to close out the remainder of 2024 and with Republicans taking control over both chambers of Congress in the just completed election cycle, no major tax legislation is expected, although there is potential for minor legislation before the year ends.
The GOP takeover of the Senate also puts the use of the reconciliation process on the table as a means for Republicans to push through certain tax policy objectives without necessarily needing any Democratic buy-in, setting the stage for legislative activity in 2025, with a particular focus on the expiring provision of the Tax Cuts and Jobs Act.
Eric LoPresti, tax counsel for Senate Finance Committee Chairman Ron Wyden (D-Ore.) said November 13, 2024, during a legislative panel at the American Institute of CPA’s Fall Tax Division Meetings that"there’s interest"in moving a disaster tax relief bill.
Neither offered any specifics as to what provisions may or may not be on the table.
One thing that is not expected to be touched in the lame duck session is the tax deal brokered by House Ways and Means Committee Chairman Jason Smith (R-Mo.) and Chairman Wyden, but parts of it may survive into the coming year, particularly the provisions around the employee retention credit, which will come with $60 billion in potential budget offsets that could be used by the GOP to help cover other costs, although Don Snyder, tax counsel for Finance Committee Ranking Member Mike Crapo (R-Idaho) hinted that ERC provisions have bipartisan support and could end up included in a minor tax bill, if one is offered in the lame duck session.
Another issue that likely will be debated in 2025 is the supplemental funding for the Internal Revenue Service that was included in the Inflation Reduction Act. LoPresti explained that because of quirks in the Congressional Budget Office scoring of the funding, once enacted, it becomes part of the IRS baseline in terms of what the IRS is expected to bring in and making cuts to that baseline would actually cost the government money rather than serving as a potential offset.
The IRS reminded individual retirement arrangement (IRA) owners aged 70½ and older that they can make tax-free charitable donations of up to $105,000 in 2024 through qualified charitable distributions (QCDs), up from $100,000 in past years.
The IRS reminded individual retirement arrangement (IRA) owners aged 70½ and older that they can make tax-free charitable donations of up to $105,000 in 2024 through qualified charitable distributions (QCDs), up from $100,000 in past years. For those aged 73 or older, QCDs also count toward the year's required minimum distribution (RMD). Following are the steps for reporting and documenting QCDs for 2024:
IRA trustees issueForm 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in early 2025 documenting IRA distributions.
Record the full amount of any IRA distribution on Line 4a ofForm 1040, U.S. Individual Income Tax Return, orForm 1040-SR, U.S. Tax Return for Seniors.
Enter "0" on Line 4b if the entire amount qualifies as a QCD, marking it accordingly.
Obtain a written acknowledgment from the charity, confirming the contribution date, amount, and that no goods or services were received.
Additionally, to ensure QCDs for 2024 are processed by year-end, IRA owners should contact their trustee soon. Each eligible IRA owner can exclude up to $105,000 in QCDs from taxable income. Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined. QCDs did not require itemizing deductions. New this year, the QCD limit was subject to annual adjustments based on inflation. For 2025, the limit rises to $108,000.
Further, for more details, seePublication 526, Charitable Contributions, andPublication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
The Treasury Department and IRS have issued final regulations allowing certain unincorporated organizations owned by applicable entities to elect to be excluded from subchapter K, as well as proposed regulations that would provide administrative requirements for organizations taking advantage of the final rules.
The Treasury Department and IRS have issued final regulations allowing certain unincorporated organizations owned by applicable entities to elect to be excluded from subchapter K, as well as proposed regulations that would provide administrative requirements for organizations taking advantage of the final rules.
Background
Code Sec. 6417, applicable to tax years beginning after 2022, was added by the Inflation Reduction Act of 2022 (IRA),P.L. 117-169, to allow “applicable entities” to elect to treat certain tax credits as payments against income tax. “Applicable entities” include tax-exempt organizations, the District of Columbia, state and local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority, and rural electric cooperatives.Code Sec. 6417also contains rules specific to partnerships and directs the Treasury Secretary to issue regulations on making the election (“elective payment election”).
Reg. §1.6417-2(a)(1), issued underT.D. 9988in March 2024, provides that partnerships are not applicable entities for Code Sec. 6417 purposes. The 2024 regulations permit a taxpayer that is not an applicable entity to make an election to be treated as an applicable entity, but only with respect to certain credits. The only credits for which a partnership could make an elective payment election were those underCode Secs. 45Q,45V, and45X.
However, Reg. §1.6417-2(a)(1) of the March 2024 final regulations also provides that if an applicable entity co-ownsReg. §1.6417-1(e)“applicable credit property” through an organization that has madeCode Sec. 761(a)election to be excluded from application of the rules of subchapter K, then the applicable entity’s undivided ownership share of the applicable credit property is treated as (i) separate applicable credit property that is (ii) owned by the applicable entity. The applicable entity in that case may make an elective payment election for the applicable credit related to that property.
At the same time as they issued final regulations underT.D. 9988, the Treasury and IRS published proposed regulations (REG-101552-24, the “March 2024 proposed regulations”) underCode Sec. 761(a)permitting unincorporated organizations that meet certain requirements to make modifications (called “exceptions”) to the then-existing requirements for aCode Sec. 761(a)election in light ofCode Sec. 6417.
Code Sec. 761(a)authorizes the Treasury Secretary to issue regulations permitting an unincorporated organization to exclude itself from application of subchapter K if all the organization’s members so elect. The organization must be “availed of”: (1) for investment purposes rather than for the active conduct of a business; (2) for the joint production, extraction, or use of property but not for the sale of services or property; or (3) by dealers in securities, for a short period, to underwrite, sell, or distribute a particular issue of securities. In any of these three cases, the members’ income must be adequately determinable without computation of partnership taxable income. The IRS believes that most unincorporated organizations seeking exclusion from subchapter K so that their members can makeCode Sec. 6417elections are likely to be availed of for one of the three purposes listed inCode Sec. 761(a).
Reg. §1.761-2(a)(3)before amendment by T.D. 10012 required that participants in the joint production, extraction, or use of property (i) own that property as co-owners in a form granting exclusive ownership rights, (ii) reserve the right separately to take in kind or dispose of their shares of any such property, and (iii) not jointly sell services or the property (subject to exceptions). The March 2024 proposed regulations would have modified some of theseReg. §1.761-2(a)(3)requirements.
The regulations under T.D. 10012 finalize some of the March 2024 proposed regulations. Concurrently with the publication of these final regulations, the Treasury and IRS are issuing proposed regulations (REG-116017-24) that would make additional amendments toReg. §1.761-2.
The Final Regulations
The final regulations issued under T.D. 10012 revise the definition in the March 2024 proposed regulations of “applicable unincorporated organization” to include organizations existing exclusively to own and operate “applicable credit property” as defined inReg. §1.6417-1(e). The IRS cautions, however, that this definition should not be read to imply that any particular arrangement permits aCode Sec. 761(a)election.
The final regulations also add examples toReg. §1.761-2(a)(5), not found in the March 2024 proposed regulations, to illustrate (1) a rule that the determination of the members’ shares of property produced, extracted, or used be based on their ownership interests as if they co-owned the underlying properties, and (2) details of a rule regarding “agent delegation agreements.”
In addition, the final regulations clarify that renewable energy certificates (RECs) produced through the generation of clean energy are included in “renewable energy credits or similar credits,” with the result that each member of an unincorporated organization must reserve the right separately to take in or dispose of that member’s proportionate share of any RECs generated.
The Treasury and IRS also clarify in T.D. 10012 that “partnership flip structures,” in which allocations of income, gains, losses, deductions, or credits change at some after the partnership is formed, violate existing statutory requirements for electing out of subchapter K and, thus, are by existing definition not eligible to make aCode Sec. 761(a)election.
The Proposed Regulations
The preamble to the March 2024 proposed regulations noted that the Treasury and IRS were considering rules to prevent abuse of theReg. §1.761-2(a)(4)(iii)modifications. For instance, a rule mentioned in the preamble would have prevented the deemed-election rule in priorReg. §1.761-2(b)(2)(ii)from applying to any unincorporated organization that relies on a modification in then-proposedReg. §1.761-2(a)(4)(iii). The final regulations under T.D. 10012 do not contain any rules on deemed elections, but the Treasury and the IRS believe that more guidance is needed underCode Sec. 761(a)to implementCode Sec. 6417. Therefore, proposed rules (REG-116017-24, the “November 2024 proposed regulations”) are published concurrently with the final regulations to address the validity of Code Sec. 761(a) elections by applicable unincorporated organizations with elections that would not be valid without application of revisedReg. §1.761-2(a)(4)(iii).
Specifically, Proposed Reg. §1.761-2(a)(4)(iv)(A) would provide that a specified applicable unincorporated organization’sCode Sec. 761(a)election terminates as a result of the acquisition or disposition of an interest in a specified applicable unincorporated organization, other than as the result of a transfer between a disregarded entity (as defined in Reg. §1.6417-1(f)) and its owner.
Such an acquisition or disposition would not, however, terminate an applicable unincorporated organization’sCode Sec. 761(a)election if the organization (a) met the requirements for making a newCode Sec. 761(a)election and (b) in fact made such an election no later than the time inReg. §1.6031(a)-1(e)(including extensions) for filing a partnership return with respect to the period of time that would have been the organization’s tax year if, after the tax year for which the organization first made the election, the organization continued to have tax years and those tax years were determined by reference to the tax year in which the organization made the election (“hypothetical partnership tax year”).
Such an election would protect the organization’sCode Sec. 761(a)election against all terminating acquisitions and dispositions in a hypothetical year only if it contained, in addition to the information required byReg. §1.761-2(b), information about every terminating transaction that occurred in the hypothetical partnership tax year. If a new election was not timely made, theCode Sec. 761(a)election would terminate on the first day of the tax year beginning after the hypothetical partnership taxable year in which one or more terminating transactions occurred.Proposed Reg. §1.761-2(a)(5)(iv)would add an example to illustrate this new rule.
These provisions would not apply to an organization that is no longer eligible to elect to be excluded from subchapter K. Such an organization’sCode Sec. 761(a)election automatically terminates, and the organization must begin complying with the requirements of subchapter K.
The proposed regulations would also clarify that the deemed election rule inReg. §1.761-2(b)(2)(ii)does not apply to specified applicable unincorporated organizations. The purpose of this rule, according to the IRS, is to prevent an unincorporated organization from benefiting from the modifications in revisedReg. §1.761-2(a)(4)(iii)without providing written information to the IRS about its members, and to prevent a specified applicable unincorporated organization terminating as the result of a terminating transaction from having its election restored without making a new election in writing.
In addition, the proposed regulations would require an applicable unincorporated organization making aCode Sec. 761(a)election to submit all information listed in the instructions to Form 1065, U.S. Return of Partnership Income, for making aCode Sec. 761(a)election. The IRS explains that this requirement is intended to ensure that the organization provides all the information necessary for the IRS to properly administerCode Sec. 6417with respect to applicable unincorporated organizations makingCode Sec. 761(a)elections.
The proposed regulations would also clarify the procedure for obtaining permission to revoke aCode Sec. 761(a)election. An application for permission to revoke would need to be made in a letter ruling request meeting the requirements ofRev. Proc. 2024-1or successor guidance. The IRS indicates that taxpayers may continue to submit applications for permission to revoke an election by requesting a private letter ruling and can rely onRev. Proc. 2024-1or successor guidance before the proposed regulations are finalized.
Applicability Dates
The final regulations under T.D. apply to tax years ending on or after March 11, 2024 (i.e., the date on which the March 2024 proposed regulations were published). The IRS states that an applicable unincorporated organization that made aCode Sec. 761(a)election meeting the requirements of the final regulations for an earlier tax year will be treated as if it had made a validCode Sec. 761(a)election.
The proposed regulations (REG-116017-24) would apply to tax years ending on or after the date on which they are published as final.
National Taxpayer Advocate Erin Collins is criticizing the Internal Revenue Service for proposing changed to how it contacts third parties in an effort to assess or collect a tax on a taxpayer.
Current rules call for the IRS to provide a 45-day notice when it intends to contact a third party with three exceptions, including when the taxpayer authorizes the contact; the IRS determines that notice would jeopardize tax collection or involve reprisal; or if the contact involves criminal investigations.
The agency is proposing to shorten the length of proposing to shorten the statutory 45-day notice to 10 days when the when there is a year or less remaining on the statute of limitations for collection or certain other circumstances exist.
"The IRS’s proposed regulations … erode an important taxpayer protection and could punish taxpayers for IRS delays,"Collins wrote in a November 7, 2024,blogpost. The agency generally has three years to assess additional tax and ten years to collect unpaid tax. By shortening the timeframe, it could cause personal embarrassment, damage a business’s reputation, or otherwise put unreasonable pressure on a taxpayer to extend the statute of limitations to avoid embarrassment.
"Furthermore, the ten-day timeframe is so short, it is possible that some taxpayers may not receive the notice with enough time to reply,"Collins wrote."As a result, those taxpayers may incur the embarrassment and reputational damage caused by having their sensitive tax information shared with a third party on an expedited basis without adequate time to respond."
"The statute of limitations is an important component of the right to finality because it sets forth clear and certain boundaries for the IRS to act to assess or collect taxes,"she wrote, adding that the agency"should reconsider these proposed regulations and Congress should consider enacting additional taxpayer protections for third-party contacts."
The IRS has amended Reg. §30.6335-1 to modernize the rules regarding the sale of a taxpayer’s property that the IRS seizes by levy. The amendments allow the IRS to maximize sale proceeds for both the benefit of the taxpayer whose property the IRS has seized and the public fisc, and affects all sales of property the IRS seizes by levy. The final regulation, as amended, adopts the text of the proposed amendments (REG-127391-16, Oct. 15, 2023) with only minor, nonsubstantive changes.
The IRS has amended Reg. §30.6335-1 to modernize the rules regarding the sale of a taxpayer’s property that the IRS seizes by levy. The amendments allow the IRS to maximize sale proceeds for both the benefit of the taxpayer whose property the IRS has seized and the public fisc, and affects all sales of property the IRS seizes by levy. The final regulation, as amended, adopts the text of the proposed amendments (REG-127391-16, Oct. 15, 2023) with only minor, nonsubstantive changes.
Code Sec. 6335governs how the IRS sells seized property and requires the Secretary of the Treasury or her delegate, as soon as practicable after a seizure, to give written notice of the seizure to the owner of the property that was seized. The amended regulation updates the prescribed manner and conditions of sales of seized property to match modern practices. Further, the regulation as updated will benefit taxpayers by making the sales process both more efficient and more likely to produce higher sales prices.
The final regulation provides that the sale will be held at the time and place stated in the notice of sale. Further, the place of an in-person sale must be within the county in which the property is seized. For online sales,Reg. §301.6335-1(d)(1)provides that the place of sale will generally be within the county in which the property is seized. so that a special order is not needed. Additionally,Reg. §301.6335-1(d)(5)provides that the IRS will choose the method of grouping property selling that will likely produce that highest overall sale amount and is most feasible.
The final regulation, as amended, removes the previous requirement that (on a sale of more than $200) the bidder make an initial payment of $200 or 20 percent of the purchase price, whichever is greater. Instead, it provides that the public notice of sale, or the instructions referenced in the notice, will specify the amount of the initial payment that must be made when full payment is not required upon acceptance of the bid. Additionally,Reg. §301.6335-1updates details regarding permissible methods of sale and personnel involved in sale.
The Financial Crimes Enforcement Network (FinCEN) has announced that certain victims of Hurricane Milton, Hurricane Helene, Hurricane Debby, Hurricane Beryl, and Hurricane Francine will receive an additional six months to submit beneficial ownership information (BOI) reports, including updates and corrections to prior reports.
The Financial Crimes Enforcement Network (FinCEN) has announced that certain victims of Hurricane Milton, Hurricane Helene, Hurricane Debby, Hurricane Beryl, and Hurricane Francine will receive an additional six months to submit beneficial ownership information (BOI) reports, including updates and corrections to prior reports.
The relief extends the BOI filing deadlines for reporting companies that (1) have an original reporting deadline beginning one day before the date the specified disaster began and ending 90 days after that date, and (2) are located in an area that is designated both by the Federal Emergency Management Agency as qualifying for individual or public assistance and by the IRS as eligible for tax filing relief.
FinCEN Provides Beneficial Ownership Information Reporting Relief to Victims of Hurricane Beryl; Certain Filing Deadlines in Affected Areas Extended Six Months (FIN-2024-NTC7)
FinCEN Provides Beneficial Ownership Information Reporting Relief to Victims of Hurricane Debby; Certain Filing Deadlines in Affected Areas Extended Six Months (FIN-2024-NTC8)
FinCEN Provides Beneficial Ownership Information Reporting Relief to Victims of Hurricane Francine; Certain Filing Deadlines in Affected Areas Extended Six Months (FIN-2024-NTC9)
FinCEN Provides Beneficial Ownership Information Reporting Relief to Victims of Hurricane Helene; Certain Filing Deadlines in Affected Areas Extended Six Months (FIN-2024-NTC10)
FinCEN Provides Beneficial Ownership Information Reporting Relief to Victims of Hurricane Milton; Certain Filing Deadlines in Affected Areas Extended Six Months (FIN-2024-NTC11)
National Taxpayer Advocate Erin Collins offered her support for recent changes the Internal Revenue Service made to inheritance filing and foreign gifts filing penalties.
National Taxpayer Advocate Erin Collins offered her support for recent changes the Internal Revenue Service made to inheritance filing and foreign gifts filing penalties.
In an October 24, 2024, blogpost, Collins noted that the IRS has"ended its practice of automatically assessing penalties at the time of filing for late-filed Forms 3250, Part IV, which deal with reporting foreign gifts and bequests."
She continued:"By the end of the year the IRS will begin reviewing any reasonable cause statements taxpayers attach to late-filed Forms 3520 and 3520-A for the trust portion of the form before assessing any Internal RevenueCode Sec. 6677penalty."
Collins said this change will"reduce unwarranted assessments and relieve burden on taxpayers"by giving them an opportunity to explain the circumstances for a late file to be considered before the agency takes any punitive action.
She noted this has been a change the Taxpayer Advocate Service has recommended for years and the agency finally made the change. The change is an important one as Collins suggests it will encourage more taxpayers to file corrected returns voluntarily if they can fix a discovered error or mistake voluntarily without being penalized.
"Our tax system should reward taxpayers’ efforts to do the right thing,"she wrote."We all benefit when taxpayers willingly come into the system by filing or correcting their returns."
Collins also noted that there are"numerous examples of taxpayers who received a once-in-a-lifetime tax-free gift or inheritance and were unaware of their reporting requirement. Upon learning of the filing requirement, these taxpayers did the right thing and filed a late information return only to be greeted with substantial penalties, which were automatically assessed by the IRS upon the late filing of the form 3520,"which could have penalized taxpayers up to 25 percent of their gift or inheritance despite having no tax obligation related to the gift or inheritance.
She wrote that the abatement rate of these penalties was 67 percent between 2018 and 2021, with an abatement rate of 78 percent of the $179 million in penalties assessed.
"The significant abetment rate illustrates how often these penalties were erroneously assessed,"she wrote."The automatic assessment of the penalties causes undue hardship, burdens taxpayers, and creates unnecessary work for the IRS. Stopping this practice will benefit everyone."
Taxpayers must generally provide documentation to support (or to “substantiate”) a claim for any contributions made to charity that they are planning to deduct from their income. Assuming that the contribution was made to a qualified organization, that the taxpayer has received either no benefit from the contribution or a benefit that was less than the value of the contribution, and that the taxpayer otherwise met the requirements for a qualified contribution, then taxpayers should worry next whether they have the proper records to prove their claim.
Taxpayers must generally provide documentation to support (or to “substantiate”) a claim for any contributions made to charity that they are planning to deduct from their income. Assuming that the contribution was made to a qualified organization, that the taxpayer has received either no benefit from the contribution or a benefit that was less than the value of the contribution, and that the taxpayer otherwise met the requirements for a qualified contribution, then taxpayers should worry next whether they have the proper records to prove their claim.
Cash donations
The taxpayer must provide records to prove a donation of any amount of cash (including payments by cash, check, electronic funds transfer or debit, and credit card). Acceptable records for cash donations of less than $250 generally include:
An account statement or canceled check;
A written letter, e-mail or other properly issued receipt from the qualified organization bearing the name of the organization and the date and amount of the contribution; and/or
A pay stub, Form W–2, or other payroll document showing the amount of a contribution made from payroll.
Caution: A taxpayer cannot substantiate deductions through written records it has prepared on its own behalf, such as a checkbook or personal notes.
Cash donations of more than $250. If a taxpayer donated $250 or more in cash at any one time, the taxpayer must provide a contemporaneous written acknowledgment of the donation from the qualified organization. For each donation of $250 or more, the taxpayer must obtain a separate written acknowledgment. Furthermore, this written acknowledgement must:
State the amount of the contribution; and
State whether the qualified organization provided the taxpayer with any goods or services in exchange for the donation, and if so estimate their value; and
Be received by the taxpayer before the earlier of (1) the return’s filing date or (2) the due date of the return, plus any extensions.
Note: The written acknowledgment ideally would also show the date of the contribution. If it does not, the taxpayer must also provide a bank record that indicates the date.
The acknowledgment must contain a statement of whether or not a taxpayer received any goods or services as a result of the donation, even if no goods or services were received. Even if the donation was for tithes to a religious organization, such as a church, synagogue, or mosque, the acknowledgment should state that the only goods and services received were of intangible religious value. The Tax Court has upheld the disallowance of charitable contribution deductions where the written acknowledgment omitted such a statement regarding goods or services provided.
Noncash contributions
As with cash contributions, the requirements for substantiating noncash contributions increase with the value of the contribution. For example, to substantiate noncash contributions of less than $250, taxpayers must show a receipt or other written communication from the charitable organizations.
To substantiate a noncash contribution between $250 and $500, the taxpayer must obtain a written acknowledgment of the contribution from the qualified organization prior to the earlier of the filing date or due date of its return. The acknowledgment must also describe the type and value of the goods and services, if any, provided to the taxpayer as a result of the donation.
To substantiate noncash contributions totaling between $500 and $5,000 or donations of publically traded securities, a taxpayer must complete Section A of Form 8283, Noncash Charitable Contributions. To substantiate noncash contributions of $5,000 or more (for example, donations of art, jewelry, vehicles, qualified conservation contributions, or intellectual property) the taxpayer must complete Section B of Form 8283. Generally, this would also require the taxpayer to obtain a qualified appraisal of the property’s fair market value.
A word about valuation. A charity is not obligated to provide a value to any noncash contribution; its written receipt only needs to describe the item(s) and note the date of the contribution. The taxpayer, however, is not relieved from making a good-faith estimate of value, which of course the IRS may dispute on any audit. “Thrift-shop” value is often used to value donations of clothing and household goods.
Caution: Last year the Treasury Inspector General for Tax Administration (TIGTA) issued a report finding that the IRS was not accurately monitoring the reporting of noncash contributions requiring completion of Form 8283. The IRS responded that it agreed that it needed to initiate more correspondence audits with taxpayers claiming noncash contributions without the necessary Form 8283 and appraisal.
Vehicles. A taxpayer who donates a motor vehicle, boat, or airplane to charity must deduct either the gross proceeds from the qualified organization’s sale of the vehicle or, if the vehicle is used within the charity’s mission, the fair market value of the vehicle on the date of the contribution, whichever is smaller. The taxpayer must also obtain and attach Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to its return in addition to Form 8283.
The requirements for substantiating charitable contributions can be complicated. Please contact our office with questions.
Vacation homes offer owners many tax breaks similar to those for primary residences. Vacation homes also offer owners the opportunity to earn tax-advantaged and even tax-free income from a certain level of rental income. The value of vacation homes are also on the rise again, offering an investment side to ownership that can ultimately be realized at a beneficial long-term capital gains rate.
Vacation homes offer owners many tax breaks similar to those for primary residences. Vacation homes also offer owners the opportunity to earn tax-advantaged and even tax-free income from a certain level of rental income. The value of vacation homes are also on the rise again, offering an investment side to ownership that can ultimately be realized at a beneficial long-term capital gains rate.
Homeowners can deduct mortgage interest they pay on up to $1 million of "acquisition indebtedness" incurred to buy their primary residence and one additional residence. If their total mortgage indebtedness exceeds $1 million, they can still deduct the interest they pay on their first $1 million. If one mortgage carries a substantially higher rate than the second, it makes sense to deduct the higher interest first to maximize deductions.
Vacation homeowners don't need to buy an actual house (or even a condominium) to take advantage of second-home mortgage interest deductions. They can deduct interest they pay on a loan secured by a timeshare, yacht, or motor home so long as it includes sleeping, cooking, and toilet facilities.
Capital gain on vacation properties. Gains from selling a vacation home are generally taxed as long-term capital gains on Schedule D. As with a primary residence, basis includes the property's contract price (including any mortgage assumed or taken "subject to"), nondeductible closing costs (title insurance and fees, surveys and recording fees, transfer taxes, etc.), and improvements. "Adjusted proceeds" include the property's sale price, minus expenses of sale (real estate commissions, title fees, etc.). The maximum tax on capital gain is now 20 percent, with an additional 3.8 percent net investment tax depending upon income level. There's no separate exclusion that applies when selling a vacation home as there is up to $500,000 for a primary residence.
Vacation home rentals. Many vacation home owners rent those homes to draw income and help finance the cost of owning the home. These rentals are taxed under one of three sets of rules depending on how long the homeowner rents the property.
Income from rentals totaling not more than 14 days per year is nontaxable.
Income from rentals totaling more than 14 days per year is taxable and is generally reported on Schedule E of Form 1040. Homeowners who rent their properties for more than 14 days can deduct a portion of their mortgage interest, property taxes, maintenance, utilities, and other expenses to offset that income. That deduction depends on how many days they use the residence personally versus how many days they rent it.
Owners who use their home personally for less than 14 days and less than 10% of the total rental days can treat the property as true "rental" property, which entitled them to a greater number of deductions.