by Gopal parandhaman, Who is a Certified Public Accountant specializing in professionals and Small businesses, For further consultations call (916) 368.2370.
Home mortgage loan points
Points Loan Origination fees/loan discount points paid by the buyer M Connection with the purchase or improvement of (and secured by) the principal residence are deductible for Income Tax purposes by the buyer.
Points paid for a normal refinancing Of the existing loan to Obtain lower interest rates or re place adjustable rate with fixed Tate mortgages can be prorated Over the term of the loan for tax deduction purposes.
In the case where the seller directly paid the points on your be half or separately reimburses you for them, the buyer may not claim the deduction, since technically the buyer never paid them. For tax Purposes the buyer should ask the seller to reduce the sales price and then pay the points directly and claim the deduction.
Home office deduction
If you use part of your income regularly and exclusively as the principal place of business for any trade or business or as a regular meeting place for clients, patients Or customers in the normal course of business you may deduct the Ordinary and necessary expenses of running your home office, This includes allocable share of the expenses of operating your home, But you may not deduct more than the net income produced by the home office. If you are an employee as opposed to an independent contractor, a Sole proprietor or a partner an additional requirements required, the home office must be used in connection with your employer’s trade or business and at your employer’s convenience provided that you have not been given Suitable office space elsewhere. According to IRS guidelines to deduct the depreciation cost of the computer used at home, it must be acquired and used for the convenience of your employer and its use must be required as a condition of your employment. It means if your employer has a computer in the office the home computer is not being used for your employer’s convenience, But according to a Tax Court ruling in 1990, you can still deduct the depreciation cost of the home computer, even if it is not required as a condition of your employment. An aggressive tax professional might take this stand,
Rental property
If you own a house or other real estate and rent it to someone, the taxable rental income reported on your tax return consists of your §f0ss rental income less rental expenses, the cost of operating your Property including the mortgage interest, real estate taxes, insurance and normal outlays for maintenance and repairs are deductible as Current expenses.
Rental activities are generally treated as passive activities, regardless of the time and effort you spend, If your rental expenses exceed your rental income, the losses are passive activity losses and may be deducted only from passive activity income. In this situation the provisions of at risk rules apply. But a limited $25,000 exception from passive loss rules is available for those tax payers with adjusted gross income under $150,000 and who actively participate in the management of the Property.
Individual Retirement Accounts (IRAs), Keogh plans and SEP plans
If neither you or your spouse is covered by an employers on sored pension, profit sharing or similar plan then you could put away some amount towards the retirement and receive a deduction for the amount invested.
Single individuals may make a deductible contribution of up to $2,000 per year. Twoeamer married couples may make a deductible contribution of up to $4,000 per year (assuming each spouse earned at least $2,000).
One earner married couples may make deductible contributions to their accounts of up to $2,250 per year in the aggregate.
You must make an IRA contribution by the due date for your return, not including extensions (April 15,1993 for your 1992 tax return). Moreover,
single individual with adjusted &ross income of up to $25,000 may still deduct up to $2,000 for an IRA even if covered by company qualified plan. married couples filing jointly with adjusted gross income of up to $40,000 are entitled to the full TRA deductions up to $4,000 if both earn at least $2,000 or $2,250 if one does not work even if one of them is covered by a company qualified plan,
But if your income is above the threshold amounts described above and either you or your spouse is active participant in an employer sponsored qualified plan your IRA deduction will be phased out (reduced).
If you are a sole proprietor or an active partner in a partnership you (or your partnership) may set up a Keogh plan and contribute up to 25% of your earned income. The major advantages of Keogh plans are that plan contributions are currently deductible, income earned on plan assets is tax free and five or 10 year forward aver aging is available for benefits paid al retirement.
SEP (Simplified Employee Pension Plan) is another form of qualified plan for small businesses, Under a SEP, an employer, including a sole proprietor, may make deductible pension contributions to separate IRAs for himself or herself and each eligible employee.
Article extracted from this publication >> March 19, 1993
