American Tax Service

Helping Americans File Their Taxes

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What is The New IRS 1040 Form?

The new Form 1040 is different from the old one. This new draft may seem confusing, but we are going to help you understand it. Here are the five things all Americans should know about the new IRS Form 1040.

The New 1040 Form is the Size of a Postcard

new 1040 form

One of the main promises Donald Trump made during the 2016 presidential campaign is he wanted to change the tax code to make it simpler. He said that he wanted the average American to be able to file their taxes on something the size of a postcard.

This promise has been somewhat satisfied as Form 1040 is indeed about the size of the average postcard.

Form 1040 now has just 23 lines, which is less than the 79 lines we are all used to. The front of the card continues the relevant identifying information for each taxpayer, with the tax calculations performed on the back.

There are Six New Schedules for the Form 1040

The average American will find that filing the new Form 1040 will make filing taxes simpler. For Americans who have more complex tax affairs, this is far from true.

As well as the schedules that exist today, the IRS is bringing in six new schedules alongside them. These include Schedule A for any itemized deductions and Schedule C for self-employed Americans. But there are six new ones that may also need to be used.

To differentiate them, these new schedules are numbered, rather than lettered. Here’s a quick rundown of what they are.

Schedule 1 – This is for additional sources of income that wouldn’t be included on a W-2. It can also be used for any income adjustments, student loan interest, and contributions to an IRA fund.

Schedule 2 – This is for taxpayers who have other types of taxes, such as a child’s unearned income.

Schedule 3 – Designed for nonrefundable tax credits.

Schedule 4 – Taxpayers will use this to add up specific taxes, such as any uncollected social security, self-employment tax, and Medicare taxes.

Schedule 5 – The point of this schedule is to add up any tax payments. For example, estimated tax payments or taxes paid with an extension.

Schedule 6 – Anyone who wants to add a third-party designee would use this. Americans who discuss tax returns through a third-party with the IRS directly would use this.

So even though Form 1040 is smaller, the content has really been transferred to a range of other schedules. Anyone with a simple Form 1040 will benefit, but anything else will require even more paperwork.

Form 1040-EZ and Form 1040-A No Longer Exist

Before the new Form 1040, the IRS also had the EZ and A variations of the 1040. So that explains why there are six brand new schedules because all this content had to go somewhere.

The ordinary 1040 was complex, which is why the short form 1040-A came into being. The EZ form was designed for Americans who have extremely simple tax affairs. So now these have been morphed into the six new schedules. The information is the same, but the forms have changed.

Every American will now use Form 1040. Complex tax affairs will require the relevant schedules to be attached to the new 1040.

Some Aspects of Form 1040 are Gone

So, we’ve established that Form 1040 isn’t necessarily as simple as it seems. But a few of the things you saw on your last Form 1040 are gone entirely. This is because of the Tax Cuts and Jobs Act, which completely overhauled the tax system.

This is where things get difficult to understand, but we’ve included some examples of some of the things you’ll no longer see:

  • Deductions for alimony.
  • Personal exemptions.
  • Any miscellaneous deductions.
  • Moving expenses deductions.

Online Tax Filing is Up to Date With New 1040 Form

Today’s online tax filing is up to date with the latest IRS tax forms, including the new tax deductions and credits. You can easily and accurately file your taxes online this tax season.

Learn how online tax filing can help you file your 1040 form online and how you can receive other benefits for doing so.

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Federal Remodel Incentive Programs and Tax Relief Options

Federal home remodel incentives

Do you want to get a refund the next time you remodel your home?

There is a variety of different local, state, and Federal remodel incentive programs that can help you improve the value of your home.

There is also a range of tax relief options and low-interest loans you can take advantage of, but many of them are difficult to find.

What are the Basic Requirements?

The programs offered by the government are limited to things that increase the value of your home. They specifically exclude luxuries, such as home spas and outdoor kitchens. To be eligible, you need to follow a few key rules to claim a Federal remodel tax credit.

Future Renovations Only – These incentives don’t apply to any past renovations. You should apply to these programs before you start the project.

Limited Remodels – Most of these programs are only there to support basic changes that would enhance your property value. For example, some programs won’t support replacing your roof, but they will support upgrading your roof with a superior material.

Oversight is Necessary – During your project, you must submit to at least one inspection. There will be plans in place to schedule the start of the project and when the inspection will take place.

Have You Considered Property Tax Exemptions?

Property taxes can make up a huge part of owning a home in some states. Property taxes may amount to thousands of dollars per year.

If you’re eligible to join a property tax exemption program, it means that you’ll be exempt from paying local property taxes in part or in full for the duration of your project.

The issue with providing eligibility requirements is that they can differ between every town and every county. Typically, if you’re the owner of a single property, you can qualify. You must also make sure that the property is owner-occupied, in most cases.

Most counties don’t itemize which home improvements qualify. Instead, they are opting for broad categories. You need to do your research in your local area to find out more about what qualifies.

Take note that property tax exemptions are only temporary, according to state laws. Your main point of contact will be administrators and tax assessors in your town or county.

Home Improvement Programs (HIPs)

HIPs are a type of program that provides low-interest or no-interest rate loans to homeowners who want to make improvements to their homes.

The idea behind them is to help you save thousands of dollars because your local government is subsidizing the interest on your loan. Depending on the loan you qualify for, you may have part of your interest or all your interest subsidized.

There are lots of different eligibility rules, but the main rules are that you need to be remodeling an existing building, your gross income must be below a set limit, and you can’t be using the money to install luxury items.

Keep in mind that not every part of the US will have HIPs available. Those that do will have county tax assessors to handle the loan. Only occasionally are private lenders used for home equity loans. Even if this does happen to you, the county is continuing to subsidize it.

You May Be Eligible for FHA Rehab Loans

The formal name for an FHA rehab loan is an FHA 203(k) Rehab Loan Program.

The way they work when you buy a home that needs remodeling is that your mortgage will only cover the cost of the house itself. Any remodeling must be paid for out of your own pocket. This can mean long waiting times and high-interest rates just to bring your home up to the required standard.

An FHA rehab loan is essentially the US government guaranteeing your loan, so lenders are better able to lend with confidence.

Requirements for these loans vary considerably. Some of them only include renovations up to a limit, whereas others allow you to demolish the home and rebuild.

There’s a lot of bureaucracy when it comes to applying for these loans – especially because you’re dealing with the US Department of Housing and Urban Development – so it’s wise to hire someone to help you out.

Federal Tax Deductions for Home Improvements

tax deductions home remodeling

Remodeling of your house is not usually a cost that can be deducted from your federal income taxes. However, there are many techniques that you can utilize for home remodeling and upgrades to decrease your taxes.

This includes both tax breaks and tax incentives for remodeling and enhancements made to your house, either when you bought the home or after.

Keep in mind, that online tax filing will help you claim every remodel tax deduction and credit you are eligible for, like those related to renovating your house.

How to File Taxes Online Using TurboTax

When you file with TurboTax Online Online they will search over 350 tax deductions and credits to find every tax break you qualify for so you get your maximum refund.

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Child and Dependent Care Tax Credit 

What is the child and dependent care tax credit?One of the most difficult financial burdens, when you have young children, is paying for dependent care, but some good news is that there are some relief options when it comes time to file your taxes.

What is the Child and Dependent Care Tax Credit?

The child and dependent care tax credit is available for almost anyone who has a dependent and is working.

The dependent care tax credit is different than the child tax credit, and this article is intended to help you understand how to claim the childcare tax credit.

How do I Qualify for the Child and Dependent Care Tax Credit?

How to qualify for the dependent and child care credit.

To qualify:

You must have at least one dependent child or adult who cannot provide their own care. You also must be working and receiving an income to qualify for this tax credit. If you have a spouse, they must also be working or unable to provide care for the dependent at home (for example, if they are on disability).

Generally, the child must be your dependent and under the age of 13. However, there are specific circumstances for children and adults older than 13 to be eligible for the credit.

The child must also live with you at least half the year in the case where custody is split between parents or guardians.How much is the child care credit worth?

The daycare center must also be a qualifying provider for the credit. You do not qualify if you pay your adult children to supervise your kids during the day.

For specific qualification scenarios and questions, it is always best to check the IRS’s official website (www.irs.gov) or speak with a tax professional.

How Much is the Child and Dependent Care Tax Credit Worth?

It can be tricky to calculate exactly how much the tax credit will be worth when it comes time to file your taxes. However, the basic starting point is that you get up to $3000 for one dependent and up to $6000 for having multiple dependents in dependent care.

You do not get that full amount back as a credit, however. Instead, a sliding scale based on your adjusted income will provide a percentage of this amount that gets credited back on your taxes.

For example, let us also assume that you have 2 dependents living with you for the entire year, and you spent $4800 on dependent care through the calendar year. You could expect a $1440 tax credit on your return based on these rough parameters.

This is a significant credit, which is different than a tax deduction. Essentially, this money will go back into your pocket or directly reduce the amount of taxes you owe for the year.

Can I Claim Child and Dependent Care if I Have a Higher Income?

Learn how to claim the child care credit>One of the nice things about the child and dependent care tax credit is that it does not disappear with higher incomes. So while the percentage is less, this credit is designed with working families in mind, and you can still get a good amount of the expenses you pay for dependent care back in your tax refund.

Claim Your Credit With Online Tax Filing

Today’s online tax filing is up to date with the latest tax forms, including the new child care and dependent tax deductions and credits. You can easily claim the dependent and child care tax credit.

Online filing services can import your W2 information into your tax return so you can avoid worrying about your forms being delivered via snail mail.

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Rental Property Tax Deduction

Deciding to become a landlord can be highly beneficial for yourental home financially. However, it also comes with a significant amount of work.

As well as the general responsibilities associated with running a rental property, you need to find tenants, pay all your expenses, and ensure you have insurance.

In personal tax terms, renting out a property can complicate the situation. There are rental property tax deductions available to help you out with running your business, though.

Different deductions are available from the IRS. However, remember that the IRS says that these expenses must generally be accepted within the rental industry and should be ordinary in nature.

There are deductions for many things, such as interest on your mortgage, repairs to your home, and insurance plans.

Interest on Your Mortgage

Practically every homeowner will need to take out a mortgage to finance their property purchase. If you’re one of those landlords who possess a mortgage, one of the largest homeowner deductions you can take is the interest payments on your mortgage.

You can’t deduct anything that pays off the original loan amount, but any amount you pay to pay off the interest is fully deductible.

Your mortgage statement will have your interest-related payment every month. Just take one of these statements and find your monthly interest payment area. Then, multiply this figure by 12, and this is the amount you can deduct.

Furthermore, any origination fees, credit card interest, and refinancing your rental property are just some of the other things that can be deducted. These are more complex to deduct, though, and may require the services of a professional accountant.

Deducting Property Taxes

Nearly every state and municipality in the country has some sort of property tax. Depending on where you are, this could be a few hundred dollars a year or a few thousand dollars a year. A quick look online will help you figure out how much you’ll be expected to pay this year. You can also find this out from a tax professional.

If you also happen to live in a state that charges for a license to become a landlord, this is also deductible.

You also need to be aware of states that charge for short-term rentals. These are known as occupancy taxes and strongly resemble state sales taxes.

Also, remember that if you pay sales tax on purchases for your business, Social Security taxes for any employees, or employee salaries, you can also deduct expenses like this on your taxes.

Are You Paying Premiums on Your Insurance Plan?

Some lenders may require that you take out insurance before they’ll authorize the mortgage application. Insurance is a fully tax-deductible expense. This applies to home insurance and other forms of liability and disaster insurance.

If you employ others, you can deduct the cost of their health insurance and their workers’ compensation insurance as well.

Insurance premiums are typically higher for landlords who own rental properties, but the fact that you can deduct those premiums eases the burden somewhat.

You have the additional protection of deducting the cost of damages in the event of theft, floods, earthquakes, and hurricanes.

Tax Deductions for Depreciation

Your property and the contents of that property are naturally going to depreciate over time. In tax terms, this is known as depreciation, which is tax-deductible.

Depreciation can be claimed as a tax-deductible expense from the moment you purchase the property. So you don’t need to have any tenants yet.

You can take this deduction by calculating the expected lifespan of the property. The deduction can then be taken over multiple years.

According to the IRS, take note that land can’t depreciate, so you can only include the property on the land.

You can also add in the value of any equipment you use to manage your rental property. Such equipment may include your work computer and the car you use to move between your properties.

Any improvements to add value or extend the lifespan of your property may also be included. These improvements could include a new roof, new furniture, or purchasing energy-efficient appliances.

The improvement must last for more than a year, offer value to your rental business, and be expected to lose value in time, according to IRS Publication 946.

This is a complex process, so don’t be afraid to call in the help of a professional.

Deducting Maintenance and Repair Costs

Any home improvements you make can be deducted in the form of depreciation. Maintenance and repair costs, though, are also fully deductible. You can add this in separately to further increase the size of your tax deduction.

These costs are only eligible if they keep your property in good condition. They can’t add significant value to your property.

Acceptable expenses would include things like calling in an exterminator, landscape gardening, painting the walls, or fixing a leaky pipe.

If you decide to hire an independent contractor to manage these problems, the labor costs can be deducted. This also applies to any managers you hire to care for your rental property.

If you decide to handle these problems yourself, you can make deductions for equipment and tools.

Under the same rules, you can deduct fees paid to a homeowner’s association or any condo fees.

Can Utilities Be Deducted?

Different landlords will handle the utilities differently. For example, some charge utilities directly to their tenants, while others cover the utilities themselves.

If you’re the type of landlord who covers the utility bills, these payments are tax-deductible.

Smart landlords will pay the utilities and then take the utility fees from their tenants. This is legal, and the deduction can still be claimed without any problems. You will still need to declare the payment from the tenant as income, though.

Professional Fees are Also Tax-Deductible

Landlords have the chance to take specific professional fees as deductions. These can apply to everything from hiring a tax accountant to the cost of the software used to prepare your taxes.

Lawyer fees are fully tax-deductible, as are real estate agent fees. In addition, any advertising fees are fully deductible.

Even landlords who hire advisors can write off the fees paid to those advisors.

In short, any professional fees are classified as operational expenses.

There are some exceptions, though. For example, legal fees used during title disputes and costs to recover properties are not tax-deductible.

Is Travel Tax Deductible?

Professional landlords often have multiple properties. The good news is that you can deduct your travel expenses. This includes travel necessary to show your property to potential tenants and to collect income.

Your regular commutes, on the other hand, are not tax-deductible.

There are two ways in which you can take deductions for travel expenses. You can use the actual expenses or use the standard mileage rate. The standard mileage rate can be found here.

Office Space is Also Deductible

Do you have a dedicated workspace for your business?

Whether it’s a commercial property or a room in your home that you use exclusively for business, you can deduct the associated costs.

The rental costs and the square footage will be your most significant expenses. But anything can be deducted if it’s necessary for running your business, including expenses as small as the cost of printer ink.

Take note. You must maintain accurate records of your purchases. In addition, the home office space deduction is sometimes flagged for auditing, so ensure that you keep as much paperwork as possible.

How Can You Claim Your Tax Deductions?

Online tax filing will help you claim all rental property tax deductions you are eligible for. If you keep accurate records throughout the year, this will be a much easier process than you might think.

The tax deduction process would become more complicated if you used the same rental property as a primary residence at any time during the last tax year. The online software will tell you how many days you can use the home as a residence per year. If you exceed this limit, your tax situation changes.

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What is Capital Gains Partial Exclusion for Home Sale?

There are some instances where you may not meet all the tests, but you would be eligible for a partial tax break. If you sell your home due to special or unforeseen circumstances, your tax preparer can talk to you about a capital gains partial exclusion for home sale. These instances would be such as unemployment or a change in your health.

Capital Gains Partial Exclusion for Home Sale

This figure is calculated as a fraction of the time that you would have met the two-year test. Let’s say you lost your job and sold your home after only being in it a year and three months.

You’ve lived in the residence for 15 of 24 months, or 15/24, or 0.625 months. For a single person, multiply the full exclusion amount of $250,000 by 0.625, and you’d be eligible to claim a capital gains exclusion up to $156,250.

Additional Rules for Special Circumstances

There have been a few changes in regards to special circumstances as well. These changes allow for military personnel and surviving spouses.

Military Personnel Special Circumstances Changes

In 2003, the law changed to allow for special considerations for military personnel. They are often redeployed, and it makes it next to impossible to meet the residency requirement. These soldiers then owe taxes when they sell their homes.

Under the new law, military personnel have up to 10 years to sell their home, allowing for the full exclusion. This is applicable if they have to move due to service commitments.

Surviving Spouse Special Circumstances Changes

In 2008, another law was passed regarding the death of a spouse. If the surviving spouse sells their home, it falls under a special consideration.

A previous law stated that a widow or widower had to sell their home the same year their spouse died. Under the new law, the surviving spouse now has up to two years to sell their home. They would be excluded up to $500,000 in gains on the home sale.

How to Claim a Capital Gains Partial Exclusion on Your Home Sale

Keep in mind, if you file online, they will ask you the correct questions to let you know how to claim capital gains deductions you qualify for and guarantee you will receive the largest refund ever.

Their online filing services have the ability to import your W2 information into your tax return so you can avoid worrying about your forms being delivered via snail mail. You can also use their free tax refund estimator to see how much of a refund you can expect.

Summing It All Up

The bottom line is that you can sell your home and still be eligible for the exclusion of gains. You’ll not always benefit from a full capital gains home exclusion so that partial exclusion may be an option. Obviously, timing is of the essence when selling your home, so before you do so, lay all your cards out on the table for your tax preparer.