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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘net investment income tax’

Four Things to Know about Net Investment Income Tax

Posted by William Byrnes on September 17, 2014


IRS Tax Tip 2014-48

Starting in 2013, some taxpayers may be subject to the Net Investment Income Tax. You may owe this tax if you have income from investments and your income for the year is more than certain limits. Here are four things from the IRS that you should know about this tax:

1. Net Investment Income Tax.  The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.

2. Net investment income.  This amount generally includes income such as:

  • interest
  • dividends
  • capital gains
  • rental and royalty income
  • non-qualified annuities

This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. Net investment income also does not include any gain on the sale of your main home that you exclude from your income.

After you add up your total investment income, you then subtract your deductions that are properly allocable to this income. The result is your net investment income. Refer to the instructions for Form 8960, Net Investment Income Tax for more on how to figure your net investment income or MAGI.

3. Income threshold amounts.  You may owe the tax if you have net investment income and your modified adjusted gross income is more than the following amount for your filing status:

Filing Status                            Threshold Amount
Single or Head of household            $200,000
Married filing jointly                        $250,000
Married filing separately                  $125,000
Qualifying widow(er) with a child       $250,000

4. How to report.  If you owe this tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enoughestimated taxes, you may have to pay an estimated tax penalty.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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7 Tax Facts for Vacation Home Rentals

Posted by William Byrnes on August 25, 2014


IRS logoIRS Summertime Tax Tip 2014-13 addressed the topic of a taxpayer renting to others, such as summer vacation rentals in San Diego.

The IRS stated that of a taxpayer rents a home to others, then usually the taxpayer must report the rental income on the tax return.  But the taxpayer may not have to report the income if the rental period is less than 15 days and the property is also the taxpayer’s home.

In most cases, a taxpayer can deduct the costs of renting a property.  However, the deduction may be limited if the property is also the taxpayer’s home.

The IRS provided 7 tax facts about renting out a vacation home.

  1. Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  2. Schedule E.  A taxpayer will report rental income and rental expenses on Schedule E, Supplemental Income and Loss.  The rental income may also be subject to Net Investment Income Tax.
  3. Used as a Home.  If the property is “used as a home,” then the rental expense deduction is limited.  This means that the deduction for rental expenses can not be more than the rental income received.  See Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  4. Divide Expenses.  If a taxpayer uses the property and also rents it to others, then special rules apply.  The taxpayer must divide the expenses between the rental use and the personal use.  To figure how to divide the costs, 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 the taxpayer’s 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 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 rented out fewer than 15 days per year, then the taxpayer does not have to report the rental income.

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8 Tax Facts a Home Seller Should Know

Posted by William Byrnes on August 18, 2014


IRS logoIn its 8th tax tip of summer, the IRS revealed that if a taxpayer sells a home for a profit, the gain may not be taxable.  The IRS provided eight tax facts about selling a home in 2014.

1. A capital gain, or a part of it, on the sale of a home may not be taxable.  This rule may apply if the home is owned and used it as the main home for at least two out of the five years before the date of sale.  However, there are exceptions to the “ownership and use” rules. Some exceptions apply to persons with a disability. Some apply to certain members of the military and certain government and Peace Corps workers.

2. Up to $250,000 of gain will not be taxable for an individual, and $500,000 for married, filing a joint return.  The Obama Care Net Investment Income Tax will also not apply to the excluded gain.

3. If the gain is not taxable because it falls beneath the threshold, then the taxpayer may not be required to report the sale to the IRS on the 2014 tax return, filed in 2015.

4. However, a taxpayer must report the sale on the 2014 tax return if part or all of the gain cannot be excluded from tax, or if the taxpayer receives a Form 1099-S, Proceeds From Real Estate Transactions.  The additional Net Investment Income Tax may apply to the gain.

5. Generally, a taxpayer can only exclude the gain from the sale of a main home once every two years.

6.  If a taxpayer has more than one home, then the taxpayer may only exclude the gain on the sale of the main home, which is usually the home lived in most of the time.

7. If a taxpayer claimed the first-time homebuyer credit when purchasing the home, then special rules apply to the sale.

8. A loss on a home sale can not be deducted.

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Court Approves New Planning Techniques for Investment Income Tax Trap for Trusts

Posted by William Byrnes on April 22, 2014


The Tax Court recently handed down a decision that could prove to be just the break that trusts participating in business activities need to escape liability for the new 3.8 percent tax on investment-type income (the NIIT) enacted with the ACA / ObamaCare.

Many trusts with business-related income are finally feeling the sting of the tax, which applied to all trust investment income for trusts with income in excess of a low $11,950 in 2013 ($12,150 for 2014).* The decision paves the way for new planning techniques in 2014 and beyond …

Read about the new planning techniques for the new investment tax: https://www.lifehealthpro.com/2014/04/21/court-untangles-investment-income-tax-trap-for-tru

Also see previous planning analysis at https://profwilliambyrnes.com/2014/01/02/irs-gives-high-income-taxpayers-a-break-on-new-3-8-tax/

See also: 10 things to know about how investments are taxed

* Estates and trusts are subject to the Net Investment Income Tax if they have undistributed Net Investment Income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year under section 1(e) (for tax year 2013, this threshold amount is $11,950). For 2014, the threshold amount is $12,150.

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