Baltimoresun.com’s tax-advice cavalcade appearance three experts from the Hunt Valley accounting close SC&H Group answering questions about advancing your acknowledgment every Monday until April 16. To be included in the afterward weeks, amuse use the anatomy at the appropriate ancillary of this folio to abide your questions.
Editor’s note: The aboriginal two questions are answered together.
Paul, Timonium: If I awash a timeshare I accept had for 19 years, is it tax deductible as a continued appellation loss?
James, Bel Air: A few years ago we bought a timeshare. We afresh awash it, at a loss, to a aggregation that buys up timeshares. They fabricated abundant of the accident that could be accounting off. My account of tax advice and a alarm to the IRS announce that it is claimed use acreage and the accident cannot be taken on taxes. The tax adviser (an enrolled abettor and above IRS employee) for the aggregation that bought the timeshare said that if we bought it with the abstraction of actuality able to advertise it in the approaching at a accretion (which the antecedent sales presentation adumbrated could be done), again the accident is deductible. Is this deductible or not?
SC&H Group: In general, the Tax Code allows taxpayers to affirmation losses and deductions so continued as such losses and deductions are not afar by accession area of the Code. An individual’s adeptness to affirmation losses accustomed are bound to those losses incurred in a barter or business, or a transaction entered into for profit. Further illustrating this point, the Tax Code provides that no answer is accustomed for “personal, living, or ancestors expenses.” IRS regulations accommodate that losses accustomed aloft the auction or disposition of acreage captivated for claimed use are not deductible.
In adjustment to actuate whether accident accustomed on the disposition of a timeshare is deductible, the aborigine charge accede how the timeshare was acclimated and the acumen it was held. If the timeshare was acclimated alone for “personal” purposes (e.g., a vacation destination for the aborigine and the taxpayer’s family, friends, etc.), again the accident accustomed on the disposition of the timeshare should not be deductible. On the added hand, if the timeshare was purchased alone as an advance asset with the ambition of axis a profit, the accident accustomed on the disposition of the timeshare should be deductible.
In assertive cases, the aforementioned asset is acclimated for both claimed and business (production of income) purposes. In such cases, IRS regulations arise to accommodate for an allocation of accident accustomed on the disposition of the asset amid the claimed use and business use portions of the property. However, this adjustment seems to announce a “division” of the acreage in catechism amid claimed and business use portions (e.g., altered apartment in a residence). On the added hand, antecedent cloister cases accept captivated that in affairs with both claimed and business elements, the claimed aspect takes precedence.
Therefore, if the timeshare was captivated for claimed use (whether in accomplished or in part), accident accustomed on the disposition of the timeshare acceptable is not deductible.
Jane, Baltimore: My bedmate and I bought our aboriginal home in 2006. Knowing we’d accept tax-deductible absorption on the accommodation and disinterestedness line, we adapted the denial amounts in our paychecks to accept added money in our pockets during the year rather than delay for a refund. We acclimated a calculator at IRS.gov to actuate the cardinal of exemptions we claimed on our W-4s, but we charge accept done article amiss because we now owe added than $5,000. What are our options for offsetting this payout application an IRA accession retroactively for 2006? I accept an existing, acceptable IRA (not a Roth) from a 401(k) rollover. It would be nice to pay some of this to ourselves rather than Uncle Sam.
SC&H Group: You accept until April 17, 2007, to accomplish a best $4,000 accession ($5,000 if you were age 50 by the end of 2006) to your Individual Retirement Account (IRA). This accession can be taken as a deduction, but the answer may be bound or phased-out completely, depending on your income, filing cachet and the actuality of an employer retirement plan. Additionally accumulate in apperception that your accommodation to alike accomplish a accession to your IRA hinges on the factors ahead listed.
You mentioned that you purchased a home in 2006. Any absolute acreage tax or credibility paid as a aftereffect would be deductible, and this could advice to abbreviate your tax liability. You may accept fabricated assertive activity ability improvements to your home that could accomplish federal and/or accompaniment assets tax credits. In addition, if this is the aboriginal time you are filing Schedule A, accomplish abiding you abduction all accommodating contributions, accompaniment taxes paid with your allotment aftermost tax division and agent business expenses.
Reg, Baltimore: You commonly book 1040A, arch of household, accepted deductions. Maryland tax based on the 1040A is filed online. You acquire aloof over $1,500 at the alpha of the year in a aperture jackpot, but can additionally accommodate a accident account offsetting your wins by the end of the year. Which tax anatomy (Federal and Maryland state) charge or can be used, and what curve are these amounts listed.
SC&H Group: Due to the actuality that you accept accustomed bank accomplishment and losses you are not acceptable to book Federal anatomy 1040A in the accepted year. Rather you charge book Federal anatomy 1040. You may accept accustomed a W-2G that includes the $1,500 that you won. The $1,500 jackpot should be included on band 21 of your federal Anatomy 1040 as added income. If you accept to catalog your deductions rather than booty the accepted deduction, you may abstract the bank losses that you incurred on Schedule A band 27. Be abiding to compute your added itemized deductions back commutual Schedule A. However, the bulk of bank losses that you may abstract is bound to your winnings.
If it is not benign to catalog your deductions for Federal purposes again you may book Maryland Anatomy 503. However, if you are able to catalog for federal purposes, again you should book Maryland Anatomy 502 so that you can advance your itemized deductions for Maryland purposes as well.
Hank, Columbia: I accept been two years backward in filing my tax acknowledgment but fabricated abiding that I had paid my taxes on the due date (April 15 for the antecedent year), although I additionally was lax in authoritative all the four appropriate estimated tax payments. Can I be answerable a amends alike admitting I had paid my all my taxes by April 15. If so, what is the amends and what is the bulk based on?
SC&H Group: The IRS requires taxpayers to pay their taxes rateably throughout the year. Absent denial from allowance income, taxpayers should accomplish annual estimated payments on April 15, June 15, September 15, and January 15 of anniversary year. Use the worksheet provided in the instructions to Anatomy 1040-ES to account the bulk of tax due with anniversary payment. If you abort to accomplish able estimated payments anniversary division again the IRS can appraise a amends to you alike if you are overpaid by the time you book your tax return. The amends is imposed on anniversary underpayment for the cardinal of canicule it charcoal unpaid. See the instructions for Anatomy 2210 for added advice on this penalty, exceptions to the amends and the actuality that the IRS will compute this amends for you if you would like.
Sharon, Timonium: I afield answered a catechism about Continued Appellation Care Insurance on accomplished Maryland tax returns. Therefore I had to pay Maryland absorption and taxes for 2003, 2004 and 2005. In November 2006, I beatific a analysis for $3,600. Can I put this bulk anywhere on this year’s federal and accompaniment returns? What band does it go on? Anatomy 1040 Schedule A? Thank you.
SC&H Group: Accompaniment and bounded assets taxes are deductible on Band 5 of Schedule A in the year in which the tax is paid. Add that acquittal to your accepted year payments for accompaniment denial and/or estimated tax payments. The tax year to which the tax amount applies makes no difference. However, absorption and penalties incurred are not deductible, so accumulate that in apperception back artful your deduction.
Answers to called questions are appear on Mondays.
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