The Tax Cuts and Jobs Act (TCJA) tax reform added new tax code Section 199A, which created a 20 percent tax deduction possibility for you if your rental property (a) has profits and (b) can qualify as a trade or business.
IRS “Safe Harbor” for Section 199A Rental Properties
Safe harbor! It sounds wonderful.
Obviously, you are going to be comfortable in a safe harbor. And if you said you don’t want comfort, you might be thought of as a little loony.
You may sense that we are not jumping with joy about this new safe harbor for Section 199A rental property. It’s true; our joy quotient is a little low on this safe harbor because of the work involved.
Our feeling is that you did this work, so your property is a trade or business with no safe harbor needed. Of course, the safe harbor gives you comfort, so we need to examine what’s involved.
With the new safe harbor, the IRS thinks it is your new friend when it comes to claiming the Section 199A 20 percent tax deduction on your rental real estate profits.
Homeowner Records: What to Keep and How Long
Keeping full and accurate homeowner records is not only vital for claiming deductions on your tax return, but also for determining the basis or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis.
What to Know If You’re Selling Your Home This Year
In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to remember if you sell your home this year.
Defer Capital Gains Using Like-Kind Exchanges
If you’re a savvy investor, you probably know that you must generally report as income any mutual fund distributions, whether you reinvest them or exchange shares in one fund for shares of another. In other words, you must report and pay any capital gains tax owed.
IRS Defines Real Property for Section 1031 Like-Kind Exchanges
The Tax Cuts and Jobs Act (TCJA) tossed an unwanted rule into Section 1031 by forbidding exchanges of personal property.
But before we move on, let’s clarify one thing: Section 1031 is not an “exchange,” which is defined by Merriam-Webster as a trade. In a tax code 1031 exchange, you generally would
- engage an intermediary to handle the money and the tax paperwork;
- sell your real property; and
- buy the replacement property.
How Renovating a Historic Building Can Put Money in Your Pocket
The federal Rehabilitation Tax Credit, or rehab credit, offers significant financial incentives for owners or leaseholders of historic buildings to renovate those structures.1
What’s the big deal? Why are tax credits so exciting?
Tax credits, unlike deductions, reduce your tax bill dollar-for-dollar. If you spend $100,000 and get a 20 percent tax credit, you reduce your tax bill by $20,000. That’s Uncle Sam putting $20,000 in your pocket. And there’s more.
Renting Out a Second Home
In general, income from renting a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income, and Loss. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS. Tax rules on rental income from second homes can be confusing, especially if you rent the home out for several months of the year and use the home yourself.
Tax Tips for Workers in the Gig Economy
The gig economy, also called sharing or access economy, is defined by activities where taxpayers earn income providing on-demand work, services, or goods. This type of work is often carried out via digital platforms such as an app or website. There are many types of sharing economy businesses including two of the most popular ones: ride-sharing, Uber and Lyft, for example, home rentals such as Airbnb, and TaskRabbit.