IRS Raises Gas Mileage Tax Deduction
In a rare midyear move, the Internal Revenue Service is increasing the tax deduction you can take for using personal vehicles for business.
On July 1, if you use your personal vehicle for business, you’ll be able to deduct 55 cents a mile from your taxable income. That marks a 4-cent increase from the beginning of this year.
While the IRS normally updates mileage rates once a year during the fall for the next calendar year, the tax agency decided to raise the gas mileage tax deduction earlier due to high gas prices. (The average gas price currently is $3.61 a gallon, which is up from $2.74 last year, according to AAA.)
“This year’s increased gas prices are having a major impact on individual Americans,” IRS Commissioner Doug Shulman told USA Today. “The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices. We are taking this step so the reimbursement rate will be fair to taxpayers.”
Source: “IRS Increases Gas Mileage Deduction at Midyear,” USA Today (June 23, 2011)
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IRS Loses $513M to Tax Credit Cheaters
An investigator with the Internal Revenue Service says the government likely paid $513 million in home buyer tax credits to people who did not qualify for it, according to a new report released today by the inspector general.
About $326 million went to more than 47,000 taxpayers who did not really qualify as first-time home buyers, according to the report. The remaining money went to prison inmates and taxpayers younger than 18 who did not even purchase a home.
The home buyer tax credit offered up to $8,000 to first-time home buyers and $6,500 to existing home owners who purchased a home in 2009 and 2010.
In February, the Justice Department announced it was cracking down on nationwide false claims for tax credits, after suing several tax preparers across the country who were trying to claim the home buyer tax credit even though they were ineligible.
Among the cases, a McAllen, Texas, man was accused of claiming at least $985,000 in tax credits in 2009, and in a Philadelphia federal court case, federal officials were accusing a tax preparer of claiming at least $1.2 million in tax credits in 2009 for his customers.
Source: “Investigator: IRS Pays $513M in Homebuyer Tax Credits to People who Probably Don’t Qualify,” Associated Press (April 15, 2011) and “Lawsuits Mount on Home Buyer Tax Credit Fraud,” REALTOR® Magazine online (Feb. 10, 2011)
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Taxes Are Tricky for Second-Home Buyers
Purchasers of second homes should be aware that, according to the IRS, taxpayers who are married and filing jointly can’t deduct interest on more than a combined total of $1 million of “home acquisition debt” for a primary and a secondary residence.
Taxpayers also may deduct up to a combined total of $100,000 of home-equity debt on their first and second homes.
After refinancing, a home owner can only deduct interest on the original amount of the loan at the time they refinanced, plus $100,000.
Buyers and refinancers also can deduct loan fees – “points” – if the money was used to buy or improve their home. They can’t deduct them if they refinanced to lower the interest rate.
Source: Inman News, Tom Kelly (04/07/2010)
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Owners Who Refinanced May Owe IRS
People who cashed out refinances, or had part of their mortgage debt forgiven when they sold their homes through short sales, will probably owe the IRS a big payback.
In 2007, Congress passed the Mortgage Forgiveness Debt Act, but that doesn’t let everyone off the hook.
Here are exceptions to the rule:
• Anyone who did a cash-out refinance and spent the money on something not housing related, then got in trouble and lost their home to a foreclosure or short sale, will owe the IRS as if the money from the refinance were earned income.
• The IRS will forgive tax liability only on money from home-equity loans that was spent to improve the property.
• Anyone who lost a vacation home or investment property to foreclosure or short sale will owe Uncle Sam.
• Multi-million dollar homes — lost or sold — are always subject to tax.
Source: CNNMoney.com, Les Christie (04/08/2010)
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IRS Clarifies What’s Needed to Claim Tax Credit
The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.
While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.
The IRS clarification says: “In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”
For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.
Source: Washington Post (02/20/2010)
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Misuse of Home Buyer Tax Credit Reported
A report earlier this month from the Treasury Inspector General for Tax Administration estimates that 73,799 taxpayers have incorrectly claimed the first-time home buyer tax credit. The report concludes: “The IRS is unable to verify eligibility for the majority of Recovery Act benefits at the time a tax return is processed.”
The IRS didn’t dispute the claim, but said it was studying the matter further. Some have suggested that this report and others will encourage Congress to put some safeguards in place before more claims result from the extension and expansion of the tax credit.
Source: The New York Times, Lynnley Browning (12/22/2009)
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Where’s the Refund?
First-time home buyers who bought as long ago as last winter are still waiting for their $8,000 tax refund.
As of mid-September, more than 1.4 million taxpayers had requested the credit by amending their federal tax returns. The IRS announced in October that it expects 5.1 million claims by year-end. That count doesn’t reflect the extension and expansion of the credit in November.
IRS spokeswoman Carrie Resch says the agency is experiencing a higher-than normal number of amended returns and because amended returns are reviewed by hand, the process is delayed.
U.S. Sen. Amy Klobuchar (D-Minn.) has been fielding constituent calls for weeks from irate home buyers. She sent a letter to the IRS that said in part: “The full and immediate economic impact of the tax credit is lost when it takes up to four months for people to get the money due to them … such lengthy delays are unacceptable and erode the public’s trust in the competence of the government.”
Source: Minneapolis-St. Paul Star Tribune, Kara McGuire (12/10/2009)
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IRS Urges Stronger Controls on Tax Credit
If Congress decides to extend and expand the first-time home buyer credit, the Internal Revenue Service wants stronger regulation that would force anyone who claims the credit to actually prove they closed on the property.
Linda Stiff, deputy commissioner of the Internal Revenue Service, told the House Ways and Means Oversight Subcommittee on Thursday that the IRS would support requiring anyone claiming the credit to file a copy of a settlement statement from the U.S. Department of Housing and Urban Development, known as the HUD-1 form, with their tax return.
IRS auditors testified that the agency believes it paid thousands of fraudulent tax credit claims, totaling at least $139 million since the first of the year.
Source: The Wall Street Journal, Martin Vaughan (10/22/2009)
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IRS Investigates Home Tax Credit Claims
The Internal Revenue Service is investigating more than 100,000 claims for the First-Time Homebuyer Tax Credit that may be unjustified or even fraudulent.
The IRS has identified 167 of what it calls “criminal schemes” involving the credit. The IRS refused Monday to elaborate about the problem.
Bonnie Speedy, AARP tax-aide director, blamed the post-closing filing procedures for the problem, saying people who weren’t entitled to the credit could too easily claim it. “People are filing for the credit who don’t have a right to file for it,” she says.
Some observers say these claims could jeopardize an extension of the tax credit.
Source: The Wall Street Journal, John D. McKinnon (10/20/2009)
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Keeping Mortgage Loans in the Family
Low-interest intra-family loans can be the best way for parents to help their children purchase a property.
The strategy makes the purchase more affordable, increases the size of the home a cash-strapped purchaser can afford, and helps the parent leverage his gift to reduce a taxable estate.
The parent must charge interest at a market rate on family loans, says Ken Kilday, an adviser with USAA Wealth Management, or face IRS penalties. But parents can then take the $13,000—$26,000 for a couple—that can be gifted without eating into the gift exemption and apply it annually toward paying off their child’s loan.
Kilday also suggests that parents put in their will that upon their death, the loan be fully forgiven.
Source: Dow Jones Newswires, Taylor Smith (10/15/2009)
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IRS Is Scrutinizing Mortgage Deductions
According to published reports, the Internal Revenue Service is more closely examining how taxpayers are reporting mortgage interest deductions.
The IRS is reportedly examining some returns with high deductions for mortgage interest and enforcing obscure rules that most home owners and many accountants could be unfamiliar with.
The calculations are very complex and rely on precise records that some home owners may have trouble producing
Experts advise home buyers who have borrowed more than $1 million in mortgages and home equity loans since 1987, the year deductibility limits were enacted, to consult a tax expert because the newest loan may not be tax deductible.
Source: Investment News Daily, Art Auerbach (08/25/2009)
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First time home buyers, tax credit explained!
The bill provides for a $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.
Full details in a printable document,save and keep;
and printable First-Time Homebuyer Credit forms from the IRS.
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