May 31, 2010

Marriage Penalty in Medicare Surtax

          on unearned income since single filers with modified adjusted gross income over $200,000 are taxed, while joint filers need only have $250,000.   The Kiplinger Tax Letter 4/16/2010.

Paying Interest on Another’s Home Mortgage Can Be Tax Deductible

          In a Tax Court case, a homeowner put the home in a land trust but remained liable on the mortgage.  Tenants moved into the home and agreed to pay rent sufficient to cover the mortgage payments and taxes.  They had an option to purchase the house and were required to make repairs and carry insurance on the house.  In the view of the Tax Court, that made the tenants the equitable owners of the house.  Even though the payments were called rent and the tenants were not on the mortgage, they could deduct the part of the payments that were used to pay the interest on the mortgage.  Adams TC Memo 2010-72.

          This set of facts is more than the mere diversion of payment of rent towards a mortgage!

Real Estate Professionals

          are those who spend over 50% of their working hours and 750 or more hours each year materially participating in real estate as a developer or landlord.  When an owner has many rental units the owner can elect to aggregate all the units as a single activity.  If the election is not made on the original return, the passive loss rules apply and the owner’s losses will typically be limited.  Trask TC Memo 2010-78.

The CPA Who Shook Up NY’s 23rd C.D. Race

          Douglas Hoffman, NYSSCPA member and former Adirondack Chapter president, gained national prominence this past year as he battled for the soul of the Republican Party.  Running on the Conservative Party ticket after coming to the conclusion that GOP candidate Assemblywoman Dierdre Scozzafava lacked the values he felt were needed in Washington, his campaign gained the attention of Republican superstars like former vice presidential candidate Sarah Palin and talk show host, Glenn Beck, and with them the eye of national media.  Ultimately, the Republican candidate dropped out of the race and endorsed the Democrat candidate, whoultimately won.

          It is rare for a CPA to run for national office, much less to win.  New York for a while had a Westchester congressman in Joseph DioGuardi CPA, an alumnus of Arthur Andersen & Co., like myself.

The Great Dividend Tax Mystery

          Next year, what will the top tax rate on dividends be? The short answer is that the rate will be either 20% or 39.6%, or something else.  On January 1, 2011 a package of tax changes enacted under President Bush expires.  These provisions contained a historic change for dividends; for the first time most were taxed at the same low capital gains rate.  Until then, dividends had been grouped with interest with both taxed at the higher rates levied on wages.

          If Congress does not act, this reclassification will lapse at the end of 2010, and next year the top dividend rate will automatically revert to 39.6%.  But this lapse is not likely to happen because lawmakers cannot simply allow the Bush tax cuts to expire in the way they did with the estate tax, because the lapse will affect even more low earners than high earners.  When taxes were cut for those in the top brackets, they were also cut for those at the bottom.  Letting the Bush changes expire would push 6,000,000 lower income households back onto tax rolls (Boo Hoo).  The way the law is written, Congress cannot let some changes expire while retaining others.  So Congress seems likely to do something, but what?  The Wall Street Journal 4/25/2010.

          Stay tuned!  My bet is this will be handled in the lame duck session of Congress where Democrats will be able to act free of the constraint of fear of the voters while they still have super majorities in both houses of Congress. 

          As always, if you have any questions about these or any other matters, do not hesitate to call me.

          Remember, We’re Here For You!!