Congress is seeking a copy of the President’s Tax returns. What is the possibility that they could seek yours as well. The answer is the right is very limited. The right to tax return information is spelled out in Section 6103 of the Internal Revenue Code. Congress does not have a blanket right to an individual’s return information. Only certain committees have that right, and it can only be shared in a Closed Executive Session Meeting of that Committee. Sec. 6103(f). That means that only members of that Committee can be present and see the returns.
So what happens if someone does leak a person’s tax information. If its willful, they face a $5,000 fine and up to Five years in prison. If its accidental its a $1,000 fine and up to one year in prison. Sec. 7213 and 7213A. And if that person works for the United States (query do Congressmen or their staffs work for the United States), they are to be immediately terminated. Cases construing 18 U.S.C. Sec. 597 refers to election of Federal Officers as members of Congress. Thus, it would appear that any Congressman who leaks return information upon conviction would no longer be allowed to serve in office. So, there are protections which include some pretty stiff consequences.
Merry Christmas you filthy animal
We have a triple whammy as we enter the new year. New tax rules with more limited itemized deductions, a Government shutdown, and rising interest rates. Historically, when rates rise real estate prices go down or stagnate, when the Tax Act of 1986 was passed and took full effect with the loss of subsidies for investment in real estate, real estate prices plummeted. This could get ugly. The moral is this. If you want to buy real estate, it might be a good time to wait for prices to drop a little (especially if we have a drawn out government shutdown in the DC area). This of course has to be balanced with the risk that interest rates may rise further. So, be careful out there. Oh, and have a Merry Christmas and remember to celebrate Christ’s birth as the reason for the season.
Go Fund Me and the Tax Grinch
In this Holiday Season, I’ve been seeing lots of requests to give through GoFundMe. Whenever money changes hands the Government is not far behind seeking its cut. So, let’s tax example. Missy needs a new liver and the surgery will cost $500,000. She has no insurance and asks her friends to help through a GoFundMe site. She has some very generous friends and receives $200,000. So, how does the IRS view this largess.
Is it a tax deductible gift? No. Its akin to passing the hat at the funeral.
Is it subject to gift tax? If the amount given is in excess of $14,400, then it you have to file a gift tax return not that you would owe any such taxes.
Is it subject to income taxes? That’s the tricky part. The amounts given were probably gifts given out of generosity or out of love and affection. But, in some cases the IRS has taken the position that it is income. A couple of things you has to be wary of.
First, I would not recommend deducting medical expenses on your tax return if they were financed out of a GoFundMe account. That’s double dipping.
Second, if the GoFundMe money is not used for a deductible purpose, it might be income. If it is used for lawyer’s fees or rent or it in essence replaces a lost wage because you lost your job or to fund a project from which you will use funds to live on, then perhaps its income.
One other question, is who set up the GoFundMe page in the first place? If it was the recipient, then the Service may take the position that it was income and not only income but earned income subject to self-employment taxes. For example long term disability payments are considered earned income. If they were used for medical, report the receipt and then deduct the medical, that way, you avoid the potential of being audited later.
Hopefully, the IRS will clarify the rules on this. The mantra is be careful.
Thanksgiving and Charitable Giving
As you’re giving thanks, this is the time of year when people start thinking about those in need. As you plan those charitable gifts, consider a few thoughts. Under the new Tax Act, you will now have a larger standard deduction. This means that your charitable gifts while noble may no longer give you any tax benefit. If you’re single you have a standard deduction of $12,000 and if you also are over 65 its a whopping $13,600. For married filing jointly, its $24,000 and for those over 65 its $1,300 per geezer.
So you have to consider your package of deductions. If you have a mortgage the interest is still for the most part deductible (unless debt exceeds $750,000 then its pro-rated). Taxes are capped at $10,000. Medical 7.5% of adjusted gross income. You get no miscellaneous itemized deductions (that includes home office if you are a salaried employee). So, add up your deductions so far and you’ll see if the charitable deductions help get you over the thresholds above. If they don’t help you there are some ways to save. For example, you can take money and have it paid directly out of your IRA to charity (Qualified Charitable Distribution – QCD). Doing so, gets money to the charity without having to pay taxes on it first. And if your over 70 1/2, these payments qualify toward your Required Minimum Distributions. You can give appreciated assets and avoid the capital gains on those assets while getting a charitable deduction.
Additionally charitable gifts no longer are much benefit relating to Estate Taxes as the Federal Government limit is $10 Million per individual or $20 Million per couple. They may do you some good if you live in a state which retained its estate or inheritance tax. However the rates on those taxes are less than 10%, so the other 90% that you gave away, does not go to your family.
The key is to still give, just run the numbers to project the best way to give. Have a blessed Thanksgiving.
Can a rental property also be a second home?
In watching the testimony during the Manafort case, the prosecution seems to be attempting to make the case that Mr. Manafort defrauded banks by calling his rental property as a second home?
If you rent out your beach house 1 day a year, on your tax return you have to allocate your expenses between Schedule A (home mortgage) and Schedule E (rental property) based upon usage.
For example let’s say that you rent out your beach house through AirBnB for 100 days per year and the rest of the year either you use it or its sits available for you to use. Is it a vacation home or a rental property. The IRS would view it as both and in fact vigorously make sure that you properly allocated as many deductions as you could to Schedule E (rental property expense) where deductions are limited.
Under Banking Regulations, the lines blur to some degree. Some lenders don’t want their purchasers to rent out the property at all. Others look to the primary intent, does the debtor intend to reside in this property periodically or to use it to make money. But generally, if you reside in it periodically after you get the loan, it should qualify as a second home.