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IRS Tool for Homebuyer Credit
March 3, 2013
A few years ago, to stimulate the housing market Congress created a special credit for certain people buying homes. It was called the first-time homebuyer credit, although it wasn’t strictly limited to people who had never owned a home. The first version of the credit was really an interest-free loan made through the tax system: qualified taxpayers received the credit in the year they bought the home but had to repay it through “recapture” of the credit over a number of years. If you claimed this version of the credit and are unsure where you stand in terms of repaying it, the IRS has a new tool on its website where you can look up this information. (Taxpayers who used the revised version of this credit do not have to repay it.)
March 3, 2013
A few years ago, to stimulate the housing market Congress created a special credit for certain people buying homes. It was called the first-time homebuyer credit, although it wasn’t strictly limited to people who had never owned a home. The first version of the credit was really an interest-free loan made through the tax system: qualified taxpayers received the credit in the year they bought the home but had to repay it through “recapture” of the credit over a number of years. If you claimed this version of the credit and are unsure where you stand in terms of repaying it, the IRS has a new tool on its website where you can look up this information. (Taxpayers who used the revised version of this credit do not have to repay it.)
The Mindbending World of Wash Sale Calculations
March 2, 2013
By Kaye A. Thomas
If you’ve made multiple purchases and sales of stock in the same company (or shares of the same mutual fund) within the same year, you may have been surprised at what was reported on Form 1099-B. This report of the tax consequences of your sales may seem to bear little relationship to the actual activity in your account. If your trading activity includes wash sales, it may be all but impossible for you to determine whether the results reported on this form are correct. From what I’ve seen, there’s a good chance they aren’t.
March 2, 2013
By Kaye A. Thomas
If you’ve made multiple purchases and sales of stock in the same company (or shares of the same mutual fund) within the same year, you may have been surprised at what was reported on Form 1099-B. This report of the tax consequences of your sales may seem to bear little relationship to the actual activity in your account. If your trading activity includes wash sales, it may be all but impossible for you to determine whether the results reported on this form are correct. From what I’ve seen, there’s a good chance they aren’t.
Gaps in Cost Basis Reporting
February 6, 2013
By Kaye A. Thomas
Brokers and mutual fund companies are now required to report your cost basis and holding period in addition to sales proceeds when you sell shares. The requirement doesn’t apply to all shares, however. What’s more, even when they follow all the rules, brokers may report incorrect figures. Taxpayers can’t rely blindly on these reports.
(more…)
February 6, 2013
By Kaye A. Thomas
Brokers and mutual fund companies are now required to report your cost basis and holding period in addition to sales proceeds when you sell shares. The requirement doesn’t apply to all shares, however. What’s more, even when they follow all the rules, brokers may report incorrect figures. Taxpayers can’t rely blindly on these reports.
(more…)
Another Demutualization Case
January 23, 2013
In recent years, many mutual insurance companies, which are owned by their policy holders, have converted to corporations owned by stockholders. In the conversion process, known as demutualization, these companies issued shares of stock to their policyholders. The IRS has taken the position that these shares of stock had zero basis. According to that view, when the shares are sold, the entire proceeds must be reported as capital gain. Some taxpayers have challenged that view, arguing that they acquired these shares as a result of paying insurance premiums, so a portion of the insurance premiums should be considered basis for the shares. Last week, a United States District Court ruling in the Central District of California, Timothy D. Reuben v. United States, disagreed with other courts that have considered the question and held in favor of the IRS, finding that the shares had zero basis.
The courts have now taken three distinct approaches to this issue. The Fisher case applied the open transaction doctrine, so that no gain would be recognized on a sale of the shares. The Dorrance case refused to apply the open transaction doctrine but found that the shares have basis. The Reuben case completes the sandwich, finding that the shares have zero basis.
January 23, 2013
In recent years, many mutual insurance companies, which are owned by their policy holders, have converted to corporations owned by stockholders. In the conversion process, known as demutualization, these companies issued shares of stock to their policyholders. The IRS has taken the position that these shares of stock had zero basis. According to that view, when the shares are sold, the entire proceeds must be reported as capital gain. Some taxpayers have challenged that view, arguing that they acquired these shares as a result of paying insurance premiums, so a portion of the insurance premiums should be considered basis for the shares. Last week, a United States District Court ruling in the Central District of California, Timothy D. Reuben v. United States, disagreed with other courts that have considered the question and held in favor of the IRS, finding that the shares had zero basis.
The courts have now taken three distinct approaches to this issue. The Fisher case applied the open transaction doctrine, so that no gain would be recognized on a sale of the shares. The Dorrance case refused to apply the open transaction doctrine but found that the shares have basis. The Reuben case completes the sandwich, finding that the shares have zero basis.
Tax Rules Extended by ATRA
January 12, 2013
The American Taxpayer Relief Act of 2012 provides “taxpayer relief” primarily by extending tax benefits that were scheduled to expire. Here is a list of the extensions that are of most interest to individual taxpayers. Changes labeled “permanent” can be altered by an Act of Congress but will not expire automatically.
(more…)
January 12, 2013
The American Taxpayer Relief Act of 2012 provides “taxpayer relief” primarily by extending tax benefits that were scheduled to expire. Here is a list of the extensions that are of most interest to individual taxpayers. Changes labeled “permanent” can be altered by an Act of Congress but will not expire automatically.
(more…)
ATRA Tax Rates for Capital Gain and Dividends
January 12, 2013
The American Taxpayer Relief Act of 2013 (“ATRA”) made important changes in the way long-term capital gain and qualified dividend income are taxed. Here’s an explanation, in Q&A format.
January 12, 2013
The American Taxpayer Relief Act of 2013 (“ATRA”) made important changes in the way long-term capital gain and qualified dividend income are taxed. Here’s an explanation, in Q&A format.
American Taxpayer Relief Act
January 3, 2013
By Kaye A. Thomas
In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:
- Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
- Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
- The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
- The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
- Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
- The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.
January 3, 2013
By Kaye A. Thomas
In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:
- Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
- Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
- The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
- The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
- Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
- The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.
Demutualization Soup: Another Ruling
July 25, 2012
By Kaye A. Thomas
Nearly four years after the first ruling in a demutualization case we have another one—and it’s inconsistent with the first one. At issue is the proper treatment of taxpayers who receive shares of stock when a mutual insurance company that issued policies to them converts into a regular corporation. The IRS has long taken the position that these shares have zero basis, so that when they are sold, the entire proceeds must be reported as capital gain. The Court of Federal Claims rejected that position in 2008, and in addition found that the open transaction doctrine applied, so that the selling shareholders would report zero gain on the sale.
July 25, 2012
By Kaye A. Thomas
Nearly four years after the first ruling in a demutualization case we have another one—and it’s inconsistent with the first one. At issue is the proper treatment of taxpayers who receive shares of stock when a mutual insurance company that issued policies to them converts into a regular corporation. The IRS has long taken the position that these shares have zero basis, so that when they are sold, the entire proceeds must be reported as capital gain. The Court of Federal Claims rejected that position in 2008, and in addition found that the open transaction doctrine applied, so that the selling shareholders would report zero gain on the sale.
Confession is Good for the — Taxpayer?
May 23, 2012
By Kaye A. Thomas
How much relief can you expect from the IRS when you inform them that you claimed a deduction to which you weren’t entitled? What if you informed them only after learning your return was about to be audited? You might expect the IRS to go into Terminator mode in a case like this, but here’s someone who received a different response. (more…)
May 23, 2012
By Kaye A. Thomas
How much relief can you expect from the IRS when you inform them that you claimed a deduction to which you weren’t entitled? What if you informed them only after learning your return was about to be audited? You might expect the IRS to go into Terminator mode in a case like this, but here’s someone who received a different response. (more…)
Coming Clean on Wash Sales
May 10, 2012
By Kaye A. Thomas
This tax season — the one that just ended for those lucky enough to have filed on time, and the one still painfully dragging on for those who filed for an extension — is the first for which brokers are required to report cost basis, in addition to gross proceeds, on Form 1099-B. An important part of the requirement is that brokers must apply the wash sale rule, which prevents you from claiming a loss on a sale of shares if you buy identical shares within 30 days before or after. Anyone who does a lot of buying and selling might wonder whether the broker applied this rule correctly. You may be surprised to learn that there’s no way to be sure. The wash sale rule is a lot more complicated than it appears, and there are unanswered questions about some aspects of its workings. (more…)
May 10, 2012
By Kaye A. Thomas
This tax season — the one that just ended for those lucky enough to have filed on time, and the one still painfully dragging on for those who filed for an extension — is the first for which brokers are required to report cost basis, in addition to gross proceeds, on Form 1099-B. An important part of the requirement is that brokers must apply the wash sale rule, which prevents you from claiming a loss on a sale of shares if you buy identical shares within 30 days before or after. Anyone who does a lot of buying and selling might wonder whether the broker applied this rule correctly. You may be surprised to learn that there’s no way to be sure. The wash sale rule is a lot more complicated than it appears, and there are unanswered questions about some aspects of its workings. (more…)
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| That Thing Rich People Do |
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The fastest, easiest way to learn the principles of investing. |
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Our complete guide to Roth IRAs and Roth accounts in employer plans: choosing, creating, building and using these accounts. |
| Consider Your Options | |
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A plain-language guide for people who receive stock options or other forms of equity compensation. |
| Equity Compensation Strategies | |
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A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options. |
| Capital Gains, Minimal Taxes | |
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Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options. |