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Ask Me (Almost) Anything: Your Tax Questions

by ARLnow.com — March 7, 2013 at 1:00 pm 743 53 Comments

Editor’s Note: Ask Me (Almost) Anything is intended to be a local, community-oriented version of Reddit’s Ask Me Anything discussion threads. See below for discussion guidelines.

Bobby Grohs CPAThe IRS tax filing deadline is April 15, just over a month away. Fortunately, local tax guru Bobby Grohs is back to answer your tax-related questions.

A Certified Public Accountant and University of Maryland grad, Grohs started Arlington-based Tax Matters LLC in 1998. He specializes in “comprehensive tax and consulting services for clients ranging from individual taxpayers, small businesses and nonprofits located throughout the greater Washington metropolitan area.”

Grohs will be answering you questions in the comment section until 4:30 p.m. If you’d like to reach him after the discussion is over, head to the Tax Matters website, email info@mytaxmatters.com or call 703-593-7391.

Also, be sure to check out our tax chat from last month.

Please note that Mr. Grohs may not be able to answer every question asked. Also please note that in addition to our normal comment policy, we ask that questions and comments be of a civil tone. We welcome tough questions and critical comments, but anything of a mean-spirited nature will be removed.

Advice is provided on an “as-is” basis. The views and opinions expressed in the comments are those of their respective authors and not necessarily those of ARLnow.com.

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  • http://www.arlnow.com/ ARLnow.com

    We’ll get this started with a question:

    Can one deduct points paid on a mortgage refinancing?

    • http://www.mytaxmatters.com/ rlgrohs

      No you cannot, you must amortize the points paid over the life of the new loan. You can deduct points paid when you purchase a home.

      • thrak

        If you refinance a second time, can the remaining value on the points from the first refinance be deducted?

  • spaghetti

    My mother listed my sister and I as remaindermen on the deed for her house and listed herself as the permanent resident of the house until death back in 2007, and then in 2012 my sister and I signed the deed back over to her and she sold the house shortly after. Even though she’s lived in the house since she bought it in 2006, is she allowed the $250,000 capital gains exclusion since my sister and I were listed as remaindermen for the past 5 years (while she was just listed as having rights to living in the house until death and not ownership)?

    • http://www.mytaxmatters.com/ rlgrohs

      You can exclude the gain on the sale of your home if you meet the following 2 requirements: 1) You have owned the home for at least 2 years during the 5 year period ending on the date of sale, and 2) You have used the home as a principal residence for at least 2 of the previous 5 yrs ending on the date of sale.

      • spaghetti

        Thanks for your response. I’m aware of those rules, but I just don’t know if being listed on the deed as having permanent rights to living in the home with remaindermen counts as ownership with respect to the capital gains exclusion…

  • Soon-First Time Home Buyer

    I know this is a basic question, but it’s never been explained in simple terms: How does the mortgage tax refund work? Is it based only off your interest owed, or interest paid? Thanks!!

    • Shlowmo

      Paid

    • http://www.mytaxmatters.com/ rlgrohs

      Can you provide more details? Do you mean the refund received at closing that is listed on the HUD-1?

    • JB

      Why would the government let you deduct money that you owe but have never paid? For all they know you could never pay it and walk on the bill and then they’d be giving everyone free money. You only get to deduct the interest that you’ve paid for the year.

    • ARL

      You’ll get a statement from your mortgage company every year with the amount of interest paid. You just plug it in to your tax return, like with your W-2.

  • PaulaW

    My husband and I are both employed full time but also have a research business that we are developing for an early retirement career change. In 2012 we constructed a new commercial building for about $160K, and 2012 rules allow us to depreciate up to 50% in our 2012 return (was 100% in 2011, 50% in 2012, and apparently extended at 50% for 2013) . We do our own returns using TurboTax and are always subject to alternative minimum tax. Our combined income is roughly $360K and the sum of our other deductions will be about $80K. How can we determine how much to depreciate and when, to take full advantage of this disappearing remnant of the stimulus package?

    • http://www.mytaxmatters.com/ rlgrohs

      If your income will be similar in 2013 and future years you may want to consider not taking the 50% bonus depreciation in 2012. Tax rates for your income threshold will be higher, i.e. the 0.9% Medicare tax, plus capital gain rates are higher for your income range.

  • Cuddy

    On the VA DMV site, some specialty plates like the “Wildlife” one have a disclaimer “A portion of your fee may be tax deductible.”, and if you click the embedded link it says “You are encouraged to consult a professional tax advisor, the Internal Revenue Service (IRS), or the Virginia Department of Taxation to determine your eligibility. DMV cannot make that determination.”

    So what exactly qualifies someone to deduct the cost of a specialty plate?

    • http://www.mytaxmatters.com/ rlgrohs

      License plates that support a charitable organization are typically more
      expensive than traditional license plates. The extra fees are a
      donation to the specific charity and are usually tax-deductible. In
      order for a charitable contribution to be deducted, it must be given to a
      qualified, recognized non-profit organization. The exact amount of the
      contribution is the only cost that qualifies as a tax write-off. The
      cost of the license plate itself is not deductible.

      • Cuddy

        Thanks; so with the wildlife plate, $15 of the $25 total goes to “the Virginia Department of Game and Inland Fisheries to support its programs.” Is that $15 deductable even though it goes to a government agency b/c it’s a voluntary contribution, or can you only deduct fees that go to a 501c?

        • http://www.mytaxmatters.com/ rlgrohs

          The fee has to be made to a qualified charitable organization.

  • ph7

    What is the best strategy to minimize the AMT? If you have mortgage interest deductions on two homes, and earn a decent income, the tax planning strategies to minimize AMT seem pretty limited (purposefully so, I assume).

    • http://www.mytaxmatters.com/ rlgrohs

      There is only so much you can do. The easiest is to defer as much income as possible through 401K/retirement plans and flexible spending accounts.

  • Greg

    I know if I convert a non-deductible IRA to a Roth IRA, then I need to calculate tax due based on the total gains in my deductible IRAs as well. Do I also need to include a self-401(k) in that calculation? Or are they ignored for that purpose.

    • http://www.mytaxmatters.com/ rlgrohs

      Upon conversion you would pay tax on any gains from the non-deductible IRA. 401K accounts are excluded.

  • natalieh

    I bought a two bedroom condo last year and have a roommate using the second bedroom. She has full use of the common space. We split utilities 50/50 so each month I receive a check from her for rent plus half of the utilities (let’s say the check is $600 each month – $500 rent/$100 utilities). For rents received on Sch. E do I report $600*number of months she rented and then deduct her share of the utilities from expenses since I’m reporting them as income, or do I just report the $500 rent as rental income and report nothing in utilities expense since I’m essentially only paying for 1/2 the utilities which cover my personal use of the condo? Thanks!

    • http://www.mytaxmatters.com/ rlgrohs

      I would report the $600 as rent income and deduct the $100 as utilities expense.

  • PropertyMan

    Over ten years ago, I sold an investment property and bought another one via a Starker Exchange. A year after I bought the second property, I moved into it and have lived there ever since (didn’t plan on doing that, but changed personal circumstances compelled me to). If/when the day comes when I sell this property, I understand I’ll have to pay capital gains based on the original purchase price of the first investment property. Is that right? Any way around that other than selling my current property in order to buy a third investment property (again, via a Starker Exchange)?

    • http://www.mytaxmatters.com/ rlgrohs

      If you use the property as your primary residence for 5 years you can exclude gain up to $250K single/$500K married. If not you’ll pay capital gain. The basis for determining capital gain is not necessarily the original purchase price of the first property. When you did the 1031 exchange you should have completed form 8824 which establishes basis.

  • Johnny Coolman

    I took out money from my Roth IRA to buy a house. It is my understanding that I don’t have to pay a penalty on the amount equal to my contribution. What about anything beyond that amount?

    • http://www.mytaxmatters.com/ rlgrohs

      You can only exclude the penalty for up to $10,000 distributed for a first time home purchase. Note first time means you have not owned a home for at least 3 years leading up to the purchase of the new home.

      • Johnny Coolman

        distributed=the amount beyond what i contributed?

        • http://www.mytaxmatters.com/ rlgrohs

          sorry for the confusion, the penalty would be assessed on earnings only. So the first $10K of earnings would not be subject to the 10% penalty.

  • goldie878

    My sister and I inherited our mother’s house in NJ. We fixed it up for the better part of the year and we now have renter’s living there. I made the trip to NJ at least twice a month for several months for repairs, painting, etc. Is my mileage from VA to NJ tax deductible? The IRS publications are a bit vague in this area. Thank you.

    • http://www.mytaxmatters.com/ rlgrohs

      Yes you can deduct the mileage for driving to/from the rental property if the purpose of the trip was for maintaining the property while is was rented.

      • goldie878

        But not if the purpose was to fix it up for rental? Only after it was rented? Thanks.

        • http://www.mytaxmatters.com/ rlgrohs

          You can deduct if the purpose was to get the property ready to be rented even if before you actually rented it.

      • goldie878

        So, the mileage isn’t deductible until the tenants were actually in the house? Not before, for the repairs?

        • http://www.mytaxmatters.com/ rlgrohs

          The mileage would be deductible for repairs if the purpose of driving to/from is getting the property ready to be rented.

  • JackJackson

    I am a single male (filing single). Throughout the year, can I claim myself as an exemption and decrease my paycheck withholdings?

    • http://www.mytaxmatters.com/ rlgrohs

      You are allowed one personal exemption for yourslef when filing your tax return so you could claim one withholding allowance when completing form W-4. Depending on your particular situation this may or may not be appropriate.

  • ClarendonClown

    So with regards to avoiding Cap Gains on a primary home sale by living there 2 of the previous 5 years, how do they count these 2 years? Is it any portion of a month adding up to 24 months or do they count days?

    • http://www.mytaxmatters.com/ rlgrohs

      # of days

  • Humbly22201

    My wife and I make make a strong salary together. We like the idea of paying taxes now, versus later, and fully fund 401(k)s. Is it rational if we have the money to go ahead and contribute $5000 for 2012 and $5,500 for 2013 into a traditional IRA, and then convert it to a Roth IRA? We did this with our Traditional IRAs in 2010, but just found out that we can still do this through a conversion now. I know we pay ~$4,400 each in taxes next year for doing this, but over the long run, does it make sense? and are others doing it?

    • http://www.mytaxmatters.com/ rlgrohs

      If you participate in a 401K with a high income as you state then your only option is to contribute to a non-deductible IRA, which is funded with after tax contributions. I’m not sure why you say you pay $4,400 in tax. Assuming you do the rollover immediately to the Roth there is no tax on this transaction….unless you do have another IRA account that have been funded pre-tax. In that scenario your rollover is part taxable and part tax-free. Many people do this whose income is too high to contribute directly to a Roth.

      • Humbly22201

        Yes, income is too high to directly contribute to a Roth. The ~$4,000 is the tax I think we would pay in 2013 for doing funding both and converting both in 2013 – 39.5% tax rate and paying for the taxes outside of the Roth. Just wondering that if we’re in our early 40s the payoff is there for the amount of taxes we’re paying now for the benefit.

        • http://www.mytaxmatters.com/ rlgrohs

          You will not owe tax on converting a non-deductible IRA to a Roth.

  • axelr

    My question is similar to Soon-First Time Homebuyer’s. I purchased a condo in 8/2012. I received 1098 forms that list mortgage interest and property taxes paid. Do I also deduct the taxes that I paid at settlement that are on my HUD-1 or would these be already included in the 1098? Is there anything else that I may need to deduct from the HUD-1?

    • http://www.mytaxmatters.com/ rlgrohs

      If you paid real estate taxes that increased the amount you are paying for the home (i.e RE taxes listed on page one of the HUD-1, where is says “adjustments for items paid by Seller in advance”). Note you cannot deduct real estate taxes paid into escrow (these would be listed on page 2 of your HUD-1). The interest paid at closing listed on the HUD is usually included on Form 1098. I do see deductible points paid at closing and listed on the HUD-1 that are not always listed on Form 1098.

  • FedEx

    My husband makes about $700K per year, and I make around $120K per year (I fully fund 401k and pay for family insurance). We have always filed jointly as married. He pays the expenses for just about everything. With future tax rates going up so much, would it make sense for me to file 2013 taxes as married filing separately? We own a house together, and have 4 kids, rental property in a trust LLC, and lots of stock market investments (we invest similarly but separately). Will he still benefit from filing jointly with me? or can I take advantage of some of the Roth IRAs, etc… if I file separately next year without hurting his deductions?

    • http://www.mytaxmatters.com/ rlgrohs

      This is hard to answer without actually preparing the tax return or preparing a tax projection first. A powerful tax software can easily determine which filing status is most beneficial.

  • DIY taxes

    Aren’t you just typing numbers into a software program? Can’t I do the same with turbotax and get the same result at less cost?

    • DIY taxes maybe

      If your taxes are simple and you do not itemize nor own a business yes software will work. Good to have a human eye on the more advanced tax returns though. If done improperly it can cost you a lot in the long term.

    • http://www.mytaxmatters.com/ rlgrohs

      You are surely welcome to try.

  • Carmen

    Sorry this is long. I got a letter from a previous employer about an excess contribution to my 401k. Since I had already moved the 401k to another provider, I had to contact the new provider about the excess contribution. Part of the money had to be returned to me, part back to the previous employer. My new provider sent me a check for the total amount and I sent a certified check for the amount that was supposed to go back to the employer. Now I have a 1099-R for the total excess contribution amount and no one will send me anything saying I sent part of that back to tha previous employer. Will I just have go ahead taxes on the total amount, including the part sent back to previous employer?

    • http://www.mytaxmatters.com/ rlgrohs

      yes because the entire amount was excluded from your taxable wages

  • http://www.arlnow.com/ ARLnow.com

    Thank you for a great discussion. We are closing the comments at this time.

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