SaraEA

I believe it has to do with the fact that ID thieves were making up fake W2s to go along with their fake returns. The verification code is just another data point to authenticate the taxpayer and income/withholding. CT DRS told us that people were actually registering fake businesses to get state IDs to file fake CT returns and get refunds. That's what happens when you put the entire registration process online.

As I understand it, and I could be very wrong, for real estate only the portion of depreciation in excess of SL is subject to recapture. If the property has been depreciated under MACRS, there is no excess and hence no recapture. The depreciation taken is subtracted from cost to yield the adjusted basis, so it raises the amount of capital gain, which is taxed at cap gain rates. If over time the owner had added Sect 1245 property like appliances etc, those gains would be subject to recapture at the 25% rate.

More on how the new law helps large RE investors. Architects are excluded from the selected service businesses subject to the limitations on the 20% exclusion. (They were always grouped with drs, attorneys, accountants, etc before.) The W-2 limitation piece of the exclusion doesn't affect big real estate holdings because most employ management companies and have few W-2 wages. I believe some rental property will now qualify for Sect 179. The mom and pops may reap some benefit if rentals are ultimately determined to be a trade or business eligible for the 20% exclusion. I tried to calculate the exclusion for a client who makes enough to be subject to the phase-out. WHAT A CONVOLUTED MAZE! Being over the $315k means calculating the phase-out, then applying the W-2 and capital limitations that phase IN, then looking at taxable income minus capital gains, and the exclusion can't be more than 20% of that figure. Everyone got that? I'd rather calculate AMT by hand, or do the five lump-sum Soc Sec worksheets with a pencil. Just calculating the income tax is impossible at this time. The new rates that apply to each bracket of income have changed. The chunk of income that used to be taxed at 10% is now taxed at 12%, the amount at 15% is now 12%, and so on. There is not yet a calculator to do this. The media is full of calculators but I wouldn't trust them. If the IRS and professional groups have not yet released one, how did the media act so fast? My hunch is they are designed to capture your personal info like income and filing status for the sole purpose of adding these tidbits to the dossier they already keep on each of us like browsing history, purchases, pets, and other lucrative details.

rfassett, you didn't actually try to open the link did you?!!! Thank your security software for keeping you out of harm's way. The whole point of these scams is to get you to open a link, which opens your computer system to an invasion of malware. From there, they can steal all your client data. NEVER EVER click any links, especially from strangers but even strange emails from clients. (Several times a year I get odd emails from clients, like just a link, or a movie recommendation. I tell them their account has been hacked and to change their password.) I got two emails just this week from "new clients" wanting me to prepare their taxes. I didn't open either but forwarded both to [email protected]. Please don't try that again. Just delete.

You can file the gift tax return now with no penalty unless the client has actually given away more than the exclusion amount. It's a good idea to get it over with. Form 706 requires reporting for prior gifts for which no 709 was filed. I know, few will ever need a 706, but sometimes it is filed just to elect portability or because the state has a lower threshhold and wants one.

Catherine, real estate investors is the appropriate term. Business interest deduction limited except for real estate businesses. Like-kind exchanges limited to real estate. There's more but I'm not in my office to look at the info. Sounds like RE investors got singled out for favors. Think about whom that is going to help.....

Maybe the numbers are just randomly generated--try hacking that! Anyone been to an IRS liaison meeting lately that discussed the use of these numbers? My hunch is that tax pros did not religiously seek and enter these long drawn-out alpha-numeric strings or always enter them correctly, especially when things got busy. I suspect we are in for a scolding and maybe eventually will be required to enter them or face fines. (The IRS needs money and Congress won't give it to them, so someone has to.)

I was at a seminar on Monday and the instructor (a JD), said he thinks rentals qualify but will withhold saying so definitively until IRS issues clarification. There is A LOT in this law that favors real estate owners.......

Missed depreciation is an automatic change. All you have to do is fill out Parts I, II, IV, and Sch E. It's not that complicated. You can do it!

Anyone ever notice that if you do the calculations on the current W4, the result is way more exemptions than anyone wants to claim? My son had to fill one out recently and called me to ask why it told him to claim 3 exemptions (he's single, no exemptions except himself). I've had a lot of clients who tried filling the form out themselves and called with the same question. The IRS has a long history of trying to get people to break even, with their withholding roughly equal to their liability. They seem to have given up because people love those big refunds and they can't convince them to change. My guess is that the new tax tables approximate the breakeven scenario, just like the calcs on the current W4s. With the old system taxpayers could manipulate their withholding by changing the number of exemptions, which is no longer an option. So in Illmas's scenario, the taxpayer might see $71 more each paycheck, but maybe $11 is his lower liability and $60 is from the $1600 refund he used to get--now being given to him in installments of $60 X 26 weeks. 2019 refund = $40.

IRS should be able to do nicely without 11,000 employees because now they have several hundred thousand of US doing their work for them. We have due diligence requirements for EITC, ACTC, education credits, and now HOH. When will we get time to do the actual tax return?

Don't take that class too soon Christian. The whole AMT schema just changed and it will probably take "college people" some time to figure it out and explain it to Congress.

From what I've read, there are going to be a million "technical corrections" to the bill before we even have regs. For those of you who don't want to pay attention to any tax bill before it becomes law, don't even try to sink your teeth into this one because even the law is going to be tweaked over and over again. This is what happens when you pass tax reform in a matter of weeks. Even Regan's overhaul didn't go into effect for two years after passage, allowing plenty of time for clarifications.

You mean you haven't mastered partial differential equations?

But aren't we being told that SS numbers are not to be used for identification purposes? Why doesn't the IRS ask for PTINs or something else?

From what I've seen with my clients, most employers have switched to "restricted" stock options. These are added to W2 income in the year received. If the employee hangs on to them, they become eligible for cap gains rates if kept long enough, with basis being whatever was added to W2 plus expense of sale. Most of my clients in this situation ignore my advice and cash them the day they vest, some adding $200-300k to their income--all taxed at ordinary income rates. How do people who already make $300k+ a year need that money so badly they can't wait a year? I will never be in that situation so I guess I'll never find out.

Thank you Judy for that great explanation. With tax reform, I think it's possible that a lot of people will be able to use those AMT credits because so few taxpayers will be subject to AMT (at least I think so, there are so many moving parts). Some exclusion items that are added back to arrive at AMTI are gone anyway--exemptions, misc itemized deductions, non-acquisition mortgage interest, limited SALT. All that will have to be added back is SALT, private activity bond interest and the standard deduction. Raising the phase-out limits will excuse a lot of people from AMT, and people who make above those limits usually don't pay AMT because their regular tax rate is higher. To me it looks like Congress just eliminated the AMT without calling it that.

Good questions, Judy. I think any answers hinge on why the house wasn't sold for five years. Was a family member living there? If so, no deductions. Were the heirs fighting over their fair share or contesting the will? Was the title in limbo and had to be litigated? Those reasons might work. Taxman will have to research whether the 266 election can be made late. Please share your findings.

Pacun, it seems like most of your clients will no longer itemize after 2017 so you better start looking for new clients. I think this coming tax season will be extremely busy because people will have heard so much about tax reform they'll be confused, even if most changes won't affect their 2017 filing. Next tax season should also be super busy because even if folks try DIY they won't believe the results and will seek professional help. Once they get that they won't be itemizing, business should drop off for former Sch A clients. This prediction of course hinges on how IRS defines children and certain non-children now that we have no more exemptions. Will we still have dependents? (Category useful only for claiming certain credits, etc.) For all of us February should be insane when people start getting their paychecks with the new withholding amounts and want to know if enough is being withheld. I am already dreading the phone calls, knowing by then I'll be buried in tax returns.

I don't see how the constitutional argument will fly, and I am not even a lawyer. The 16th Amendment gives Congress the authority to levy an income tax, period. Section 61 of US Code 16 tells us that income is taxable "from whatever source derived." Any income not taxed is an exception granted by the "grace of Congress." The Constitution does not anywhere state that SALT taxes can be deducted from gross income. The only reason they have been deductible is that Congress has graced us with the privilege, an action that has now been partially rescinded. Although some will argue that taxing income given over to SALT is double taxation, I don't see that either. I make $100k a year and hand over $20k to the IRS. My state taxes me on my gross $100k too. How come no one complained that the state was double taxing me on my IRS payment? It will be interesting to see how various tax rules will be enforced now that there are no more exemptions. Will there be no more qualifying child/relative? How then do you qualify for HOH, or take a "dependent's" education expenses for AOC, or take dependent care expenses? Congress better give IRS a whole pile of money to hire attorneys and staff to rewrite almost every single form, instructions and pub (and people to explain it to us). This could take years....

The problem you present is that the house was sold FIVE YEARS after the TP died. For basis you will use FMV at date of death. All you can add to basis that I can think of are the realtor fees, title transfer, state tax stamps--those items at the bottom of page 2 of the HUD. Also the cost of any improvements made to make the place saleable. If the house was sold reasonably soon after death, the estate could make a case that the maintenance fees, taxes, utilities, etc. were part of the process of liquidating the asset so the value could be distributed to heirs. RE taxes would be deductible in the year paid, and the rest as 2% misc deductions. Attorney fees could be added to basis. The fact that it took so long suggests that the house was being used by someone--a beneficiary?--or no one took responsibility and let it languish. In this case attorney fees can be deducted as administrative expenses, and the RE taxes for the year of sale can be taken (be sure to subtract what the buyer repaid shown on the HUD), but I don't see a way to deduct prior years taxes or the maintenance because it clearly wasn't being maintained all those years to attract a buyer. Note that your fee for preparing the 1041 can be deducted (not subject to 2%) even if not paid yet--the code actually allows it. No 1041 was required for prior years because there was no income. When you file the 1041, you will have to include an explanation as to why the estate was open for more than 2 years. Hope this helps.

I have one client who claimed $89k in NY state and NYC taxes last year. Bought a house on Long Island this year which will add $36k in property taxes. Sum of both limited to $10k in 2018. Won't be pretty. But his tax rate will go from 39.6 to 37%. Whooo Hooo. The others who will take a big hit are salespeople who get only partial reimbursement from their employers. I have one who gets a Sch A deduction of $20k just for unreimbursed mileage. With Misc itemized deductions gone, this will hurt.

CPAs have complained forever about how much of the material they have to learn for the CPA exam they will never ever use. I did the same thing when I took the EA exam 10 years ago. Not different from PhD candidates. The studying and testing process is a series of hoops you have to jump through to have enough sweat equity in your credential to value it. That said, don't be so quick to dismiss the esoteric things you have to learn as never usable and a waste of time. Someday, somewhere a situation will come up where something still stored in a brain cell will emerge and tell you there is some sort of reg or pub that addresses it. You won't remember the details, just that guidance is out there, so you will go and look it up. Paying medical expenses for nondependents? Optional method of calculating SE tax? How about recapturing depreciation claimed under ACRS? It may in fact come up. And just maybe the fact that EAs have the ability to learn all this stuff and pass the horrid exam does give the credential some sheen.

Anyone know which credit reporting agency IRS is using? You can unfreeze your report at that one place only. I froze mine at all three and hope to heck the IRS isn't using Equifax.

The $3k limit on capital loss carryovers began in the 1970s. It has never been adjusted for inflation. In today's dollars, it would be worth a heck of a lot more than that. When it began, only rich people would have losses of that magnitude; in today's market you can lose that much in a week or day. If investing in Bitcoin, in an hour. Judy is correct that the loss belongs to the taxpayer and the spouse is not entitled to half. It expires when the taxpayer does. On the other hand, I agree that the IRS would never be able to figure that one out.