Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
I have received a number of phone calls after my first article on the tax aspects of Hurricane Sandy. Here are the questions asked most:
Business Property, Including A Rental House: I stated in my earlier article that a personal casualty loss is subject to a $100 and 10 percent-of-AGI subtraction before any loss is allowed. If your loss is to business property, however, neither of these subtraction rules apply. You can claim the loss on your 2012 or your amended 2011 tax return.
Involuntary Conversion Gain: This applies whether you are a homeowner, renter or business. If the insurance company pays you more than the tax basis of your home, or vacation home, you might have a taxable gain. (Tax basis is usually your original cost, plus improvements, minus depreciation.) For example, if your vacation home cost $100,000, but the insurance company gave you $150,000, you have a $50,000 gain. The gain, however, is not taxable if you repair or replace the property with the proceeds, including the gain, and make a special tax election for the gain deferral.
For business property, these expenses must occur by the end of the second year of having the gain. For your principal residence — your main home for at least two years — you have four years to make the repairs or replace the property.
Contents Of Your Personal Residence (Owned or Rented): Insurance proceeds for “contents coverage” are tax free. You need not repair, replace, or report.
Disaster Relief Payments from your employer or any person are not taxable. These payments, which would not have been covered by insurance, could cover personal and family living expenses, funeral costs, repairs to your personal residence, and replacement of contents. These payments are not to be included on your tax return.
IRA Loans: Although loans may be available from your 401(k), 403(b), or 457(b) plan without tax or penalty, the same is not true for withdrawals from you Traditional IRA accounts, where you will incur tax and penalty. There are some exceptions which always may apply. Check out IRS Publication 590, under “Early Distributions.”
Tax Payments: Business payroll tax payments are now due February 1 instead of January 31. (Gee, thanks.) Your fourth quarter individual estimated tax payment, normally due January 15, is now due by February 1. Some penalties will also be waived.
Important: Call your tax preparer to discuss your situation before you meet for your tax preparation. There may be a number of additional questions you need to answer, and your preparer will not have time in the middle of tax season to give you full concentration. Call now.
Have a Good Week.
No Joke: By the end of June 2010, 1,295 prisoners had filed for the First Time Homebuyer’s Credit, receiving refunds totaling more than $9 million. This included more than 240 inmates on death row.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.