The 2014 Tax Extenders Bill has Passed

Congress has passed the 2014 tax extenders bill (officially called the Tax Increase Prevention Act of 2014), which extends through 2014 many significant tax breaks for individuals and business that had expired at the end of 2013. This action has been long expected (though long delayed).
Individual Tax Breaks
Most of the provisions in the extenders bill were just for businesses, but there were several expired provisions affecting individual taxpayerss that have been extended through 2014. You may now take advantage of these when you complete your 2014 individual tax return.
Teachers’ Expenses
This provision allows teachers of grades K-12 to deduct up to $250 of the cost of classroom supplies that they purchase themselves. This is an “above the line” deduction, meaning it’s available whether not teachers itemize their personal deductions.
Commuting Costs
Individual taxpayers who take mass transit to work may be paid up $250 per month tax-free by their employers to defray the cost, the same as those who drive to work and pay for parking.
State and Local Sales Tax
The personal itemized deduction for state and local sales taxes has been extended through 2014. This permits itemizers to deduct state and local taxes instead of state income taxes.
College Tuition
Up to $4,000 in tuition, fees, and other expenses for college, graduate school, vocational school, or other post-secondary education may be deducted in 2014, whether or not you itemize. You may take this deduction for eligible expenses you pay for yourself, your spouse, or your dependents.
Private Mortgage Insurance
If you have to pay for private mortgage insurance to obtain a home loan, you may deduct the premiums for 2014 if you itemize your deductions.
Forgiven Mortgage Debt
Homeowners who sell their homes for a loss or lose them through foreclosure need not pay […]

Why Authors Should Care About Copyright

If you write, whether to make money or just for fun, you need to understand the fundamentals of copyright law.  If you want to know why, see my article Why Authors Should Care About Copyright at



Tax Deductions for Property Managers

For a recording of  one-hour program I recently gave on tax deductions for property managers hosted by property management software developer Buildium, go to:

January Tax Deadlines

The tax season is going to get off to a late start this year. The IRS has announced that, because of the government shutdown last year, it is delaying its start time for processing 2013 individual tax returns to January 31, 2013. This is 10 days later than normal. This applies to individuals who are employees, sole proprietors who file Schedule C, and landlords who file Schedule E. The IRS says it needs the extra time to program and test its tax processing systems.

There is no point in sending in a paper return before January 31. The IRS simply won’t look at it before then. Many tax software companies are expected to begin accepting tax returns in January and hold them until the IRS systems open on January, 31.

On the other hand, the IRS will start accepting business returns starting January 13, 2014. Business returns include Form 1120 filed by corporations, Form 1120S, filed by S corporations, Form 1065 filed by partnerships and Form 1041, the return filed by estates and trusts. It also includes various excise and payroll tax returns, such as Form 720, Form 940, Form 941 and Form 2290.

There is no great advantage to filing your taxes early unless you expect to receive a refund. In this event, the earlier the better. If you file early, you could get your refund in about 21 days. Wait until April 15, when the IRS is busier, and you might have to wait up to 31 days.

Another important January tax deadline to keep in mind is January 15, 2014. That’s the day the fourth installment of estimated tax payments for 2013 are due. The January 15 payment is supposed […]

IRS Allows Deduction for Illegal Structures Destroyed by Fire

What happens if you build a structure without obtaining the necessary permits and it’s later destroyed in a fire?

First of all, even if you have fire insurance coverage, you likely won’t be able to collect anything. Fire insurers ordinarily don’t pay off claims on illegal buildings. As a result, you’ll end up with a good-sized uninsured casualty loss.

Can you at least deduct this loss from your taxes? The IRS chief counsel has answered this question “yes.”
The case involved a couple who purchased a parcel of mountain property and built a cabin and timber mill on it without first obtaining any building permits because “they wanted to live without government interference.” Three years later, a large forest fire completely destroyed both structures.

The taxpayers filed an amended return for the year of the fire claiming a casualty loss deduction for the value of the destroyed buildings.

The IRS field examiner said they weren’t entitled to a casualty loss deduction on public policy grounds: Allowing the deduction would “severely and completely frustrate” the state policy of protecting public safety by requiring people to obtain permits before building homes

The IRS chief counsel disagreed. The counsel noted that courts disallow deductions where the claimed losses were directly caused by a taxpayer’s illegal or negligent conduct. For example, a casualty loss deduction was denied where a taxpayer’s home burned down because he intentionally set his wife’s clothes on fire. Likewise, an arsonist can’t claim a casualty loss.

Lots of people in rural and remote areas build cabins and other structures without obtaining the required permits.”
However, the counsel concluded that in this case there was not a sufficiently direct link between the casualty loss the taxpayers suffered and their failure to obtain […]

New IRS Regulations Benefit Real Estate Pros Who Own Rentals

The IRS recently issued its final regulations governing how it will implement the new new Net Investment Income (NII) tax that imposes a 3.8 percent levy on unearned income starting in 2013. The tax was enacted to help fund Obamacare.

Taxpayers are subject to the NII tax if their adjusted gross income (AGI) for the year exceeds $200,000 for singles, or $250,000 for marrieds filing jointly ($125,000 for marrieds filing separately).

If your AGI exceeds the applicable threshold, you’ll have to pay the NII tax on the lesser of (1) your net investment income, or (2) the amount that the your AGI exceeds the $200,000/$250,000 threshold.

“Unearned income” means income from all “passive” activities, including interest, dividends, annuities, royalties and rents. It does not include income from an actively conducted business.

However, it includes income from real estate rentals, even those that qualify as businesses, because rental income is always deemed to be passive income for tax purposes. Thus, landlords with profitable rentals whose AGI exceeds the threshold will be subject to the 3.8 percent tax on their rental income.

However, there is one lucky group of landlords who can avoid the NII tax on rental income: real estate professionals. The NII law provides a special exemption for them. They are not subject to the 3.8 percent tax on rental income if they “materially participate” in the real estate activity, and the activity qualifies as a business for tax purposes.

IRS regulations have long provided clear guidance on what constitutes “material participation” in an activity. For example, you materially participate if you work more than 500 hours at the activity during the year, or work 100 hours and more than anyone else. For details, see The Real Estate […]

How Much is the Obamacare Individual Penalty in 2014?

If you’re not exempt from the Obamacare health insurance mandate, you must obtain at least minimal coverage by March 31, 2014 for yourself and your dependents to avoid a tax penalty (officially called a “shared responsibility payment”).

There has been a good deal of misinformation about this penalty—many news stories and websites have stated that the penalty for 2014 is only $95. This is true only for a small minority of Americans—for most people who fail to get insurance it will be much higher.

For complete details on the amount of the penalty for 2014 and later, and how the IRS intends to collect it, see How Much is the Obamacare Individual Penalty in 2014?