IRS Tax Resolution Experts LLC | Division of TenFortyPlus | 2020

IRS Tax Resolution Experts LLC | Division of TenFortyPlus | 2020

Rental Property Loss Deductions

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Rental Property Loss Deductions The IRS Chief Counsel’s Office sets forth a clear and easier path to rental property deductions. Let’s start with the big picture and why you want to learn the IRS method. Your rental property deductions face a basic rule: all your rental real estate activities are automatically passive activities unless you pass a test that makes you a “qualifying individual,” known in most tax publications as a “real estate professional.” Rental property losses become automatically passive if you are not a real estate professional and you have Adjusted Gross Income (AGI) $125,000 or higher. Once you reach qualifying individual (real estate professional) status, your rentals become business properties that escape the passive loss rules, and they become tax shelters when you materially participate in the properties. That’s the big picture. Now, let’s see how the IRS’s clear and easier path to real estate professional status eliminates the muddle and leads to tax deductions. Tax law treats renting real estate as a passive activity regardless of the amount of time you spend on the activity. In the ugly passive loss trap, you may not use passive losses to offset taxable income from nonpassive sources (such as business or investment income). The tax code contains an important escape from the automatic rental property passive loss trap for qualifying individuals (real estate professionals): a real estate professional may currently deduct rental real estate losses if he or she materially participates in the rental activity. To qualify as a real estate professional, you must meet two time requirements: 1. You must spend more than 50 percent of your time in real estate activities in which you materially participate. 2. You must spend more than 750 hours in real estate activities in which you materially participate. Real estate activities include real estate development, redevelopment, construction, reconstruction, acquisition, conversion, rental, management or operation, leasing, and brokerage. The hours you work as an employee in real estate activities do not count toward the two time tests unless you are also at least a 5 percent owner. The IRS, in Chief Counsel Advice 201427016, clarified how you should apply the hourly and material participation rules.8 Here’s how this clear advice works—and we’ll explain it as the IRS did, with the IRS example. Example facts. You own a real property development business, rental property 1, and rental property 2. You provide more than 750 hours of personal services in the three activities combined, and you provide zero personal services for other trades or businesses. According to the IRS, you pass both tests, and that makes you a real estate professional. Because of this enhanced tax status, you now treat the two rentals as businesses (Note that the IRS required no grouping election of any type for you to achieve real professional status. Further, the IRS said that you materially participated in the combined activities because you passed the more­than­500hours test for material participation.). Get ready. You are about to see how easy the IRS makes it to materially participate and achieve tax deduction status for the rentals. To deduct a business loss from one or both of the rentals against income from all sources, you must materially participate in the individual rental or group of rentals (if formally grouped, the two rentals are treated as one for the material participation tests). To materially participate, you need to meet only one of the following five tests for either the individual rentals or the group of rentals (if grouped): 1. You perform more than 500 hours of service. 2. You perform substantially all the services performed in the activities (as compared with services performed by others, including employees or outside contractors). 3. You perform more than 100 hours of service and perform more services than any other person. 4. You met the material participation test for any five out of the past 10 years. 5. You participate in the activity on a regular, continuous, and substantial basis, based on the facts and circumstances. For purposes of the material participation test, you treat each of the two rentals as a separate activity, unless you make or have made a grouping election in your tax return to treat all your rentals as a single, collective activity. In the Chief Counsel Advice, the IRS automatically grouped (a) rental property 1, (b) rental property 2, and (c) the real property development business. You did not need to make an election in your tax return to put these three activities into a group for the more ­than ­50 ­percent and more ­than ­750 ­hours tests. Not having to materially participate in an individual property for it to qualify for both the more­ than ­50­ percent and the more ­than ­750 ­hours rules is a big deal. Many taxpayers, tax professionals, and IRS examiners have misapplied the material participation rule to deny professional real estate status. If you are one of those who got real estate status wrong but materially participated in the property or group of properties, give us a call, we can help you file an amended tax return and apply those losses against your other income to produce a tax refund. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Donating Property

Ten Forty + Quality Tax Preparation & Financial Services 5625 Cypress Creek Parkway, Ste 321, Houston TX 77069 281-397-7777 Fax 281-397-7443 Tax Tips Donating property? 5 questions to ask yourself As the holidays approach, you may decide to be extra generous this year by donating property to charity. As long as you observe the strict tax rules in this area, you may still be able to take advantage of tax benefits for 2017. The following questions will help you determine the value of your tax break. Has your donation increased in value? Normally, your deduction for charitable gifts of property is limited to the property's initial cost. However, if the property would have produced a long-term capital gain had you sold it instead of donating (aka you've owned it longer than one year) you may deduct its full fair market value (FMV). For example, say you bought a painting for $10,000 five years ago that's now worth $15,000. If you donate it to charity, you can deduct the FMV of $15,000. The $5,000 of appreciation remains untaxed… forever. Has your donation decreased in value? If property has declined in value since you acquired it, your deduction is limited to its FMV regardless of how long you have held it. Have you gotten a charitable appraisal? Whether or not property has increased or decreased in value, obtain an independent appraisal of its FMV. The IRS specifically requires independent appraisals for property donations exceeding $5,000. (The appraisal costs themselves may be deductible.) Does your donation have a charitable function? If you donate property that isn't used to further the charity's tax-exempt function, your deduction is generally limited to the property's basis. This could occur, for example, if you donate a family heirloom to a museum, but the artwork is never displayed. What is your adjusted gross income (AGI) limit? Among other limits, your deduction for charitable gifts of appreciated property in 2017 can't exceed 30 percent of your AGI. Usually, you'll be able to squeeze under the 30 percent threshold. Any excess is carried forward for up to five years. Other factors may come into play, such as special rules for donations of vehicles. Bottom line: follow the tax rules on year-end contributions and you'll be happy you did. Give us a call if you have questions about your charitable donations. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000.

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Consider these tax moves before Jan. 1 Under the tax reform plan recently announced by the Trump administration, most itemized deductions would be eliminated, except those for charitable donations and mortgage interest. Because of this potential change, you may decide you want to accelerate certain deductible expenses you would have had in 2018 into 2017. Here are three key deductions to consider: State and local income taxes. This is often a big-ticket item for residents of states with high tax rates. If payments are due on Jan. 1, 2018, pay them in December. Alternatively, you may elect to deduct state and local sales taxes. This deduction, which is often a better option for residents of low-tax states, can be claimed in one of two ways: • Deduct the actual sales tax paid during the year based on your records and receipts. • Use the IRS table. In addition to the table amount, you can deduct tax paid on certain big purchases like cars and boats. Mortgage interest and property taxes. As with state and local income taxes, you may be able to increase your current deduction by prepaying mortgage interest and property taxes. (Note that the proposed tax reform plan would repeal property tax deductions, but not mortgage interest.) You may even consider using a home equity loan to consolidate debts if the interest would qualify as deductible mortgage interest. The loan is secured by your home, so use this technique sparingly. Charitable donations. Although charitable donations aren't on the list of proposed tax reform cuts, you can bolster your deduction by making donations late in the year. Be aware that you must observe strict recordkeeping requirements for monetary gifts of $250 or more. Suppose you charge a donation on your credit card on Dec. 31. The gift is still deductible in 2017, even though you won't pay the charge until 2018. Finally, remember that itemized deductions are reduced for high-income taxpayers. We can help you figure out what deductions are most beneficial for you. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Three Little known Small BUsiness Tax Breaks

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips 3 little-known tax breaks for small businesses Some tax planning moves for small businesses are more common, like acquiring property that qualifies for the generous Section 179 expensing allowance. But other strategies may fly under the radar. Here are three little-known ways to save: Building improvements: Generally, amounts paid to improve tangible property must be capitalized and depreciated over time, but recent regulations provide a unique tax break. Under a safe harbor election, a qualified small business may deduct certain building costs above the maximum Section 179 allowance. The election is limited to $2,500 per invoice or item or $5,000 if you have an applicable financial statement (AFA) audited by a CPA. Employee bonuses: Normally, employee bonuses are deducted in the year they are paid. However, for an accrual-basis company, bonuses are currently deductible if fixed by year-end and paid within 2.5 months of the close of the tax year. Thus, your small business may deduct year-end bonuses on its 2017 return if they are paid by March 15, 2018 (other than bonuses paid to majority shareholders of a C corporation, certain owners of an S corporation or a personal service corporation). Start-up expenses: The tax law allows a small-business owner to claim a first-year deduction of up to $5,000 for qualified start-up costs. Any remainder must be deducted over 180 months. However, the $5,000 write-off is phased out on a dollar-for-dollar basis for start-up costs exceeding $50,000. Some typical start-up expenses are: An analysis of potential markets, products and costs Advertisements for the opening of the business Wages paid to train employees Travel for securing prospective distributors, suppliers, customers or clients Fees paid to outside consultants for professional services There is one catch: You must be open for business before the end of the year if you want to claim this for 2017. So make sure that the public has access to your goods or services before Jan. 1. Give us a call and we can help you determine what types of small business tax breaks might be applicable to your specific situation. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Can you Deduct Medical Home Improvements?

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Can you deduct a medical home improvement? Are you planning to make substantial home improvements in the coming year? Normally, you can't deduct home improvement expenses on your personal tax return. However, you may be able to deduct the costs of medical improvements to your home. It may be worth doing, but first there are several tax law obstacles to overcome. Potential roadblocks Under current law, you may only deduct medical expenses in excess of 10 percent of your adjusted gross income (AGI). If you don't clear that 10 percent for the year, you get no deduction. This is a high bar for many taxpayers. To determine if you qualify for a deduction, add up the unreimbursed medical expenses that satisfy the tax law requirements. An expense counts toward the 10 percent only if it's for medical care for you, your spouse or your dependent. Conversely, an expense that is just beneficial to your general health rather than a specific health issue, or one that's done for personal motives (e.g., architectural taste) isn't deductible. When a homeowner makes an improvement for medical reasons, the deductible amount is limited to the cost above the increase in the home's value. For instance, if a $10,000 improvement increases the value of your home by $4,000, $6,000 counts to the deduction. Improvements made by tenants are fully deductible, as they don't benefit from the increase in the home's value. What sort of home improvements qualify? An allergist may recommend installing central air conditioning or a swimming pool to alleviate a child's asthma. Or, you might build an elevator or bathroom on a lower floor to benefit someone with a heart condition. Other improvements could include (but aren't limited to): Making doorways larger Adding entrance or exit ramps Installing railings Modifying electrical outlets and warning systems Don't leave matters to chance. If you qualify for a deduction, obtain a written statement from a physician prescribing the improvement, and an independent appraisal of the increase in the home's value. Please call us if you have any questions. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000.

ABCs of Business Education Deductions

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips The ABCs of business education deductions Now that the kids are back in school, you may have the itch to return to the classroom yourself, perhaps to brush up on certain skills in your field or expand your horizons. Can you deduct the cost of business education? It depends. Generally, you can deduct business expenses only if one of these two requirements is met: The education is required by your employer or is mandated by law. The education maintains or improves the skills needed in your present work. A couple caveats That sounds simple enough, but there are also a couple things that can disqualify you for the deduction. First, if the education is required to meet the minimum educational requirements of your trade or business, then you are expected to pay that cost as a normal part of doing business — and without a tax break. Second, if the education qualifies you for an entirely new trade or business, then you also don't get to use the deduction. It's the second caveat that often trips up taxpayers. For instance, if a nurse starts taking courses that will result in a degree as a physician, the courts have said that the education expenses can't be deducted because it qualifies the nurse for a new line of work. If you qualify for the deductions Assuming you do qualify, you may deduct expenses like tuition, books, laboratory fees, equipment and transportation between work and school. Typically, the cost of the trip is deductible if you go straight to class after work. You can't write off travel costs if you stop at home for a snack or to change into more comfortable clothes, however. When you pay business education costs out your own pocket, the expenses are deductible as miscellaneous expenses, subject to a floor of 2 percent of adjusted gross income (AGI). However, if your company reimburses you, payments are generally deductible in full by the company and tax-free to you. Alternatively, an employer may establish an educational assistance plan (EAP) that provides up to $5,250 in annual tax-free benefits to each participant. Please call us if you have any questions. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.