With just a few days left in the year, you might want to take advantage of some of these tax breaks for individuals, offered by Chet Burgess, an enrolled agent who also owns the Brookwood Tax Service in Atlanta, GA.
Hurricane Katrina-Related Tax Breaks
Normally, the deduction for charitable contributions is limited generally to 50 percent of a taxpayer’s adjusted gross income (AGI). In an effort to boost charitable giving after Hurricane Katrina, Congress raised the deduction limit to 100 percent of AGI for gifts between August 28th and December 31st, 2005.
Taxpayers who wish to boost their charitable deductions in 2005 can do so up to the limit of the AGI and still claim the deduction. Contributions in excess of AGI can still be carried forward and used in future years.
Another Katrina legislative tax break allows taxpayers who took Katrina evacuees into their homes after the storm and who house one or more evacuees for at least 60 consecutive days to claim a $500 personal exemption for each evacuee, up to a total of $2,000.
The additional exemption may be claimed in either 2005 or 2006, but the total limit is $2,000. The evacuee’s former residence must be in the Katrina disaster area declared by the President.
Residents of the Katrina disaster area who have to withdraw money from retirement plans to help them get back on their feet will be given a break on income tax due on the withdrawal amount. Victims should use IRS Form 8915 to compute tax on the withdrawal amount as if it had been spread out over three years rather than just one, resulting in a lower total tax.
Also, Congress eliminated the penalty for early withdrawal from a qualified retirement plan by residents of the Katrina disaster areas. The normal penalty for early withdrawal (prior to age 59 ½ half) from retirement plans is 10 percent.
Also, Katrina disaster area residents will be allowed to re-deposit the money back into the retirement plan within three years. Re-contributed amounts will be treated as rollovers, and will avoid all taxes and penalties.
New IRS Definition of Qualifying Child and Changes in Dependency Exemptions
The rules affecting some taxpayers who claim related and unrelated children as dependents, and/or who claim child-related tax credits and other tax breaks changed this year.
Details are contained in an IRS news release on the web at: http://www.irs.gov/newsroom/article/0,,id=133298,00.html. Those taxpayers who may be affected should read the IRS information and may need to consult with an experienced tax professional to ensure their 2005 returns comply with the new rules.
Rules Change for the Sale of Residence Acquired in Like-Kind Exchange
Heads up real estate property investors.
Some taxpayers have used Internal Revenue Code Section 1031 to exchange rental or investment properties without recognition of taxable gain on the exchange. Such exchanges are known as “like-kind exchanges.”
Some taxpayers have later turned a rental property acquired into the exchange into their personal residence. Normally, taxpayers who own and live in a residence during any two of the five years just before sale of the residence can use provisions of IRC Section 121 to claim a tax exemption on gains from the sale, up to $500,000 for a married couple filing jointly or $250,000 for a single taxpayer.
The IRS issued a Revenue Ruling earlier this year that bars use of Section 121 for the sale of a property acquired in a like-kind exchange until the taxpayer has owned the property for five full years after the date of the exchange.
This could have a seriously negative affect on the price of rental property acquired by individuals. Consult with your tax preparer for details.
Chet Burgess, EA
Brookwood Tax Service, LLC
4 Montclair Dr., NE
Atlanta, GA 30309-1527
404-915-6268
www.brookwoodtax.com
Published: Dec 27, 2005
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