Month: September 2016

If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips about gifts and the gift tax.

1. Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:

• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you paid directly to a medical or educational institution for someone,
• Gifts to your spouse (for federal tax purposes, the term “spouse” includes individuals of the same sex who are lawfully married),
• Gifts to a political organization for its use, and
• Gifts to charities.

2. Annual Exclusion. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2016, the annual exclusion is $14,000 (same as 2015).

3. No Tax on Recipient. Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.

4. Gifts Not Deductible. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. Forgiven and Certain Loans. The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.

6. Gift-Splitting. In 2016, you and your spouse can give a gift up to $28,000 ($14,000 each) to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.

7. Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return if any of the following apply:

• You gave gifts to at least one person (other than your spouse) that amount to more than the annual exclusion for the year.
• You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
• You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
• You gave your spouse an interest in property that will terminate due to a future event.

Still confused about the gift tax? Please call for assistance.

• By Leon Clinton
• September 21, 2016

Renting out a vacation property to others can be profitable. If you do this, you must normally report the rental income on your tax return. You may not have to report the rent, however, if the rental period is short and you also use the property as your home. If you’re thinking about renting out your home, here are seven things to keep in mind:

1. Vacation Home. A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.

2. Schedule E. You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.

3. Used as a Home. If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more information about these rules, please call.

4. Divide Expenses. If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between rental use and personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.

5. Personal Use. Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also considered personal use.

6. Schedule A. Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes, and casualty losses.

7. Rented Less than 15 Days. If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case, you deduct your qualified expenses on Schedule A.

Please call the office if you have any questions about renting out a vacation home.

• By Leon Clinton
• September 18, 2016

If you filed for an extension of time to file your 2015 federal tax return and you also chose to have advance payments of the premium tax credit made to your coverage provider, it’s important you file your return sooner rather than later. Here are four things you should know:

1. If you received a six-month extension of time to file, you do not need to wait until the October 17, 2016, due date to file your return and reconcile your advance payments. You can–and should–file as soon as you have all the necessary documentation.

2. You must file to ensure you can continue having advance credit payments paid on your behalf in future years. If you do not file and reconcile your 2015 advance payments of the premium tax credit by the Marketplace’s fall re-enrollment period–even if you filed for an extension–you may not have your eligibility for advance payments of the PTC in 2017 determined for a period of time after you have filed your tax return with Form 8962.

3. Advance payments of the premium tax credit are reviewed in the fall by the Health Insurance Marketplace for the next calendar year as part of their annual re-enrollment and income verification process.

4. Use Form 8962, Premium Tax Credit, to reconcile any advance credit payments made on your behalf and to maintain your eligibility for future premium assistance.

Questions?

If you have any questions about filing an extended return, help is just a phone call away.

• By Leon Clinton
• September 16, 2016