Tax

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 keep in mind if you sell your home this year.

1. Exclusion of Gain. You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.

2. Exceptions May Apply. There are exceptions to the ownership, use, and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more information about these exceptions, please call the office.

3. Exclusion Limit. The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.

4. May Not Need to Report Sale. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.

5. When You Must Report the Sale. You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you may need to pay the Net Investment Income Tax. Please call the office for assistance on this topic.

6. Exclusion Frequency Limit. Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.

7. Only a Main Home Qualifies. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.

8. First-time Homebuyer Credit. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, please call.

9. Home Sold at a Loss. If you sell your main home at a loss, you can’t deduct the loss on your tax return.

10. Report Your Address Change. After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. You can find the address to send it to in the form’s instructions on page two. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

Questions? Help is just a phone call away.

• By Leon Clinton
• September 24, 2018

Taxpayers that need prior years’ tax returns and other tax documents should know that there is a new format for individual tax transcripts that redacts personally identifiable information from Form 1040 tax documents.

This new transcript replaces the previous format and will be the default format available via Get Transcript Online, Get Transcript by Mail or the Transcript Delivery System for tax professionals as of September 23. Financial entries will remain visible, which will give taxpayers and third-parties the data they need for tax preparation or income verification.

There is also a new IRS Customer File Number that lenders, colleges and other third parties that order transcripts for non-tax purposes can use as an identifying number instead of the taxpayer’s SSN.

The new tax transcript was created in response to criminal activity that made it a sought-after document whereby criminals attempt to pose as taxpayers accessing their own account or as tax preparers or third parties requesting client information.

The following information will be provided on the new transcript:

• Last 4 digits of any SSN listed on the transcript: XXX-XX-1234
• Last 4 digits of any EIN listed on the transcript: XX-XXX-1234
• Last 4 digits of any account or telephone number
• First 4 characters of the last name for any individual
• First 4 characters of a business name
• First 6 characters of the street address, including spaces
• All money amounts, including balance due, interest and penalties

An updated Form 4506-T and Form 4506T-EZ, Request for Transcript of Tax Return, will be available on September 23, that will have a new Line 5b for a 10-digit Customer File Number. Legitimate third parties with a need for income verification or tax data often request taxpayers complete a Form 4506-T.

As of September 23, third parties or taxpayers can create any 10-digit number, except for the taxpayer’s SSN, for use as an identifier. The Customer File Number listed on the 4506-T automatically will be posted and visible on the requested tax transcript, allowing the third party to match the document to the taxpayer. A Customer File Number can be, for example, a loan account number.

Line 5b is an optional line, intended for those third parties that request high volumes of transcripts.

There is no change in the process for students seeking income verification through Free Application for Federal Student Aid (FAFSA) or disaster victims seeking FEMA assistance. Nor will business tax transcripts change.

• By Leon Clinton
• September 21, 2018

Taxpayers with school-age children should be aware of three recent tax law changes affecting 529 education savings plans.

Tuition refunds

The PATH Act change added a special rule for a beneficiary of a 529 plan, usually a student, who receives a refund of tuition or other qualified education expenses. This can occur when a student drops a class mid-semester. If the beneficiary re-contributes the refund to any of his or her 529 plans within 60 days, the refund is tax-free.

The Treasury Department and the IRS intend to issue future regulations simplifying the tax treatment of these transactions. Re-contributions would not count against the plan’s contribution limit.

K-12 education

One of the TCJA changes allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiary’s choosing.

Rollovers to an ABLE account

The second TCJA change allows funds to be rolled over from a designated beneficiary’s 529 plan to an ABLE account for the same beneficiary or a family member. ABLE accounts are tax-favored accounts for certain people who become disabled before age 26, designed to enable these people and their families to save and pay for disability-related expenses.

The regulations would provide that rollovers from 529 plans, together with any contributions made to the designated beneficiary’s ABLE account (other than certain permitted contributions of the designated beneficiary’s compensation) cannot exceed the annual ABLE contribution limit — $15,000 for 2018.

For more information about 529 education savings plans please contact the office.

• By Leon Clinton
• September 18, 2018