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Monthly Archives: September 2017

IRS Provides Relief for Financially Distressed Homeowners by Angie Adames, CPA

Posted on September 29, 2017 by Angie Adames

The IRS recently extended until the end of 2021, a safe-harbor method for financially distressed homeowners to compute deductions for payments made on a home mortgage under state- and federal-sponsored Housing Finance Agency (HFA) foreclosure-prevention program. The relief was set to expire in 2017.

 

Eligible homeowners include 1) individuals who meet the requirements under Internal Revenue Code Sections 163 and 164 to deduct all of the mortgage interest and real estate taxes on a principal residence and 2) those individuals who participate and receive payments from HFA programs to pay interest on their home mortgages. For taxable years 2010 through 2021, eligible homeowners may deduct from their Federal income tax returns, the lesser of:

1.     The sum of all home mortgage payments the homeowner actually makes during a taxable year to the mortgage servicer or the State HFA, or

2.     The total amount of a taxpayers’ mortgage interest received, real property taxes, and deductible mortgage insurance premiums shown on Form 1098, Mortgage Interest Statement.

 

Under Notice 2017-40, the IRS also extends through 2021 relief for mortgage servicers and state housing finance agencies from penalties relating to information reporting.

About the Author: Angie Adames, CPA, is an associate director with Berkowitz Pollack Brant’s Tax Services practice, where she provides tax and consulting services to real estate companies, manufacturers and closely held business. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

Fed Continues to Scrutinize Cash Purchases of Luxury Real Estate by Barry M. Brant, CPA

Posted on September 28, 2017 by Barry Brant

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) renewed until March 20, 2018, a geographic targeting order (GTO) aimed at combating money laundering and uncovering the identities of beneficial owners of shell companies and other legal business entities that purchase luxury residential real estate without a bank loan or other form of traditional financing. This is the second time that FinCEN has revised and extended the GTO that was first introduced in 2016.

 

Under the most recent guidance, the GTO requires title insurance companies to collect and report specific information about “covered transactions” that involve the use of cash, cashier’s check, certified check, traveler’s check, business or personal check, money order or funds transfer (including wire transfers) to purchase residential real estate located in certain jurisdictions when the purchase price exceeds the following specified amounts.

  • $3 million or more in the borough of Manhattan in New York City as well as in the city and county of Honolulu
  • $2 million or more in California’s Los Angeles, San Diego, San Francisco, San Mateo and Santa Clara counties
  • $1.5 million or more in the New York boroughs of Brooklyn, the Bronx, Staten Island and Queens
  • $1 million or more in Florida’s Broward, Miami-Dade, and Palm Beach counties
  • $500,000 or more in Texas’s Bexar County

The information that title insurance companies must collect and report on FinCEN Form 8300 includes:

  • The identity of the individual authorized by the purchasing entity to enter into legally binding contracts on the entity’s behalf, including copies of such individual’s driver’s license or passport
  • The identity of the legal entity making the purchase
  • The identity of the beneficial owners who directly or indirectly own 25 percent or more of the equity interests in the purchasing entity
  • The address of the purchased property
  • The date of closing
  • The total purchase price and amount of money transferred, if different from the purchase price

According to FinCEN, real estate transactions are often complex and vulnerable to abuse by illicit actors seeking to hide their anonymity and launder criminal proceeds. Approximately 30 percent of transactions reported under the GTO have involved a beneficial owner or purchaser representative that was also the subject of a Suspicious Activity Report (SAR) previously filed by a U.S. financial institution.

 

Individuals planning to purchase luxury residential real estate without traditional financing in the areas covered by the latest GTO should be prepared to be scrutinized by Federal authorities. By meeting with experienced accountants and financial advisors, legitimate all-cash buyers can become better prepared to structure these transactions and comply with reporting, recordkeeping and other disclosure requirements.

 

About the Author: Barry M. Brant, CPA, is director of Tax, Consulting and International Services with Berkowitz Pollack Brant, where he leads the firm’s private client group and provides guidance on complex tax matters, including multi-national holdings, cross-border treaties and wealth preservation and protection.  He can be reached at the CPA firm’s Miami office at (305) 379-7000, or via email at info@bpbcpa.com.

 

Washington Outlines Its Vision of Tax Reform by Edward N. Cooper, CPA

Posted on September 28, 2017 by Edward Cooper

On September 27, 2017, President Trump and top Republican leaders unveiled the latest round of updates to what they see as the future of the Tax Code. While it remains to be seen whether the tax reform package in its current state will become the law, it is important for taxpayers to understand what the framework entails. Following is a broad overview of the new framework. If you have questions about how these reforms impact you, please contact your tax advisors and accountants.

Individual Taxes

  • Reduce the current seven tax brackets into three with a top rate of 35 percent
  • Increase the standard deduction to $12,000 for single tax filers and $24,000 for married couples filing jointly (almost double the current deduction amounts)
  • Eliminate personal exemptions that are today worth $4,050 per person
  • Preserve deductions for mortgage interest, charitable contributions, and retirement savings while eliminating many other deductions not yet specified
  • Preserve tax credits for work and higher education
  • Increase the child tax credit, which is currently worth $1,000 per child under 17
  • Eliminate the alternative minimum tax (AMT)
  • Eliminate the estate tax

Business Taxes

  • Reduce the corporate income tax to 20 percent
  • Reduce the tax rate on profits earned by small businesses and pass-through entities to 25 percent
  • Eliminate the corporate alternative minimum tax
  • Apply a new maximum tax rate to income from pass-through businesses
  • Allow at least five years of full expensing for capital investment
  • Limit the interest deduction for C corporations
  • Eliminate the Section 199 manufacturing deduction and other, non-specified deductions
  • Preserve the research and development tax credit and the low-income housing credit
  • Eliminate the current 35 percent tax on profits that U.S. businesses earn overseas and repatriate or bring back to the U.S.; move to a more territorial system for which U.S. companies would pay taxes solely to the foreign governments where they earn profits
  • Impose a new, but unspecified, minimum foreign tax to protect against cross-border income shifting and base erosion

The advisors and accountants with Berkowitz Pollack Brant will continue to monitor tax reform efforts and update our clients as opportunities become clearer.

 

About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

Can I Deduct Moving Expenses? by Adam Slavin, CPA

Posted on September 27, 2017 by Adam Slavin

Moving can be stressful and expensive. However, when individuals relocate their primary residences due to a change in their employment or business locations, they may be able to deduct certain moving expenses from their taxable income.

Time and Distance Criteria

Taxpayers who move to start new jobs, to work at new locations with their existing employers or to move their businesses must meet the distance and time tests to qualify for deducting moving expenses.

Distance. The new job must be located at least 50 miles farther away from the taxpayer’s former home than his or her previous job location. For example, if a taxpayer previously commuted five miles from home to work, the new job must be at least 55 miles from the former home.

Time. During the first year after a move, the taxpayer must work full-time at the new job for a minimum of 39 weeks. Self-employed taxpayers will meet the time test when they work full-time for a minimum of 78 weeks during the first two years at the new location.

Qualifying Expenses that are Deductible

Deductible moving expenses are those that are considered reasonable and unreimbursed by an employer, including the following:

·        Costs of travel, including transportation and lodging

·        Costs of packing and shipping household contents and personal items, including boxes and packing materials

·        Costs of hiring professional movers

·        Costs of storing and insuring contents while in transit

·        Costs of connecting and disconnecting utilities

Taxpayers should take steps to maintain accurate records of deductible moving expenses, including receipts, bills, canceled checks, credit card statements, and mileage logs. Similarly, they should save all documentation when their employers do reimburse them for moving costs.  While workers may not deduct these reimbursed expenses, they may be required to report employer repayments as taxable income.

Claiming Deductions

Qualifying taxpayers should file with their annual federal tax returns IRS Form 3903 to claim moving expense deductions. In addition, it is critical that individuals provide their new addresses to the IRS, the U.S. Post Office and a Marketplace through which they purchased affordable health care insurance.

About the Author: Adam Slavin, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practices, where he provides tax planning and consulting services to high-net-worth individuals and closely held business.  He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

Hurricane Relief for Property Owners Engaged in 1031 Exchanges by Barry M. Brant, CPA

Posted on September 18, 2017 by Barry Brant

Besides extending the due dates for certain 2016 tax returns and payments, the IRS is giving taxpayers who were affected by  Hurricanes Irma and Harvey  and who were in the middle of a Section 1031 tax-deferred exchange as of September 10, 2017, (August 23, 2017, in the case of Harvey) extra time to identify and/or close on replacement property.

Irma-affected taxpayers who sold property prior to September 11, 2017; entered into a Section 1031 tax-deferred exchange simultaneous with the sale of their property; and not yet passed the normal 45 day period to identify replacement property as of September 4, 2017, (for sales occurring prior to September 4, 2017) will have until the later of January 31, 2018, or 165 days from the date their relinquished property was sold to identify possible replacement properties.

Likewise, instead of the normal 180-day period to close on identified replacement property, affected taxpayers will have until the later of January 31, 2018, or 300 days from the date their relinquished property was sold to close on the purchase of replacement property. In no event can the postponement extend beyond the due date of the taxpayer’s tax return for 2017, including regular extensions.

Affected taxpayers for Hurricane Irma include any taxpayer who sold property and was engaged in a Section 1031 exchange on or before September 10, 2017, who resides in or has a principal place of business in Florida. The IRS extension also applies to nonresidents of Florida engaged in a 1031 exchange on or before September 10, 2017, who have difficulty meeting the normal exchange deadlines (45 and 180 days from date of sale) due to one of the following disaster-related reasons:

  1. The replacement property is in the covered disaster area or the relinquished property (in the case of a reverse tax-deferred exchange) is in the covered disaster area;
  2. The principal place of business of any party to the transaction (e.g. qualified intermediary, exchange accommodation titleholder, settlement agent, lender, title insurer) is located in the covered disaster area;
  3. Any party to the transaction is killed, injured or missing as a result of the disaster;
  4. A document relating to the exchange or a relevant closing document is destroyed, damaged or lost due to the covered disaster;
  5. A lender decides not to fund because of the disaster or because of flood, disaster or other hazard insurance not being available due to the disaster; or
  6. A title insurance company is unable to provide the required title insurance policy necessary to close due to the disaster.

In the event that a replacement property identified before the disaster is substantially damaged by the disaster, alternative replacement property may be identified by the later of January 31, 2018, or 165 days from the date the relinquished property was sold.

Similar relief to the above is also available for reverse tax-deferred exchanges.

Moreover, disaster relief is optional. We recommend that affected taxpayers immediately advise their qualified intermediaries that they are eligible for disaster relief, and that their exchange deadlines have been extended.

The rules relating to Section 1031 tax-deferred exchanges are complicated enough without a hurricane. The professional advisors and accountants at Berkowitz Pollack Brant have extensive experience with 1031 exchanges of all types, including those affected by disasters like Irma. There are many planning opportunities after disasters like Irma, so please be sure to consult with us to take advantage of our expertise.

 

About the Author: Barry M. Brant, CPA, is director of Tax, Consulting and International Services with Berkowitz Pollack Brant, where he leads the firm’s private client group and provides guidance on complex tax matters, including multi-national holdings, cross-border treaties and wealth preservation and protection.  He can be reached in the CPA firm’s Miami office at 305-379-7000, or via email at info@bpbcpa.com.

States Outside of Disaster Areas Offer Tax Filing Relief to Hurricane Victims by Michael Hirsch, JD, LLM

Posted on September 17, 2017 by Michael Hirsch,

Several U.S. states are following the federal government’s lead and postponing certain tax-related deadlines and/or waiving penalties and interest for taxpayers who cannot file or pay their state-level taxes on time due to the devastation caused by Hurricanes Harvey and Irma.

 

Internal Revenue Code Section 7508A provides the federal government with the ability to extend the deadline of time-sensitive acts, such as filing federal tax returns, to individuals whose primary residences or places of business are located in a federal disaster area designated by the President.

 

For victims of Hurricane Harvey and Hurricane Irma, the IRS has extended until January 31, 2018, the deadline for payments of quarterly estimated taxes as well as the filing of quarterly payroll and excise tax returns and individual and business tax returns that were covered under an existing filing extension. Similarly, if you live in one of the affected counties in Texas or Florida, you may also qualify for sales tax exemptions on certain services and items that would otherwise be considered taxable. This exemption may apply to labor for the repair, restoration or remodeling of storm-damaged property.

 

These extensions may also be applied, at the discretion of the IRS, to taxpayers who are located outside the disaster area but who are in some way affected by the storms. This may include a taxpayer who must report his or her share of income from a trust, estate, partnership, or LLC that is located in an affected disaster area.

 

Additionally, the Department of Revenue in each of the 50 U.S. states and the District of Columbia will often make their own decisions regarding how they will treat taxpayers who live in covered disaster areas but have an obligation to file returns or pay taxes within their states. Following is an initial list of the states that have issued formal procedural rules. More are expected to do so in the future.

 

It is advisable that affected taxpayers consult with professional accountants and advisors to meet the specific filing requirements that vary from one state to the next.

 

Alabama follows federal filing extension deadlines and penalty relief granted to taxpayers who reside in disaster areas designated as such by the U.S. president. Alabama will also consider waiving late filing and late payment penalties to taxpayers who live outside the federally declared disaster areas but are unable to file on time due to documented damages or other weather-related circumstances associated with the storms.

 

California follows federal postponement periods of tax-related deadlines announced by the IRS and applies such relief to taxpayers determined by the California Franchise Tax Board to be affected by a state of emergency declared by the Governor. In addition, California will consider requests for penalty and interest abatement it receives from affected taxpayers who live outside federal disaster areas.

 

Colorado will follow the IRS’s extension period only when taxpayers directly affected by Hurricane Irma in Florida, Puerto Rico and the U.S. Virgin Islands make a formal request to the state’s Department of Revenue to postpone the due dates for filing their state tax returns, estimated payments and sales tax reports.

 

Connecticut will consider requests for extensions of time to file returns and pay state-level taxes on a case-by-case basis. In addition, the state’s Department of Revenue will also consider waiving penalties and interest based upon the individual taxpayer’s unique circumstances.

 

Delaware will follow the rules outlined by the IRS to provide a filing extension to taxpayers located in the impacted disaster areas. To avoid a penalty assessment for late filing, taxpayers whose records are located in the disaster area should submit to the Department of Revenue a written request seeking an additional extension.

 

District of Columbia will follow the federal filing extension for taxpayers who reside or own businesses in the affected disaster areas and who have an obligation to file returns or pay taxes that are due between Aug. 23, 2017, and Jan. 31, 2018, for victims of Hurricane Harvey, or between Sept. 4, 2017, and Jan., 31, 2018, for taxpayers affected by Hurricane Irma. The relief will also extend to taxpayers whose tax preparers or financial records are located in the disaster area. Excluded from disaster relief are sales and use tax returns and withholding.

 

Florida, which is in a covered disaster area, will extend until February 15, 2018, the deadlines for Florida corporate income tax returns, as well as Florida corporate income tax installment payments with original or extended due dates between September 4, 2017, and January 31, 2018. In addition, the Department of Revenue postponed the due date for sales and use tax, and fuel tax returns and payments to September 29, 2017.

 

Georgia will abide by the IRS’s extended filing deadline for all individual and business taxpayers located in the disaster area as well as relief workers from the state who are assisting in relief activities organized by a recognized government or philanthropic organization. In addition, the state will apply the federal filing extension to individual taxpayers who were injured or killed while visiting the covered disaster areas.

 

Idaho will apply the extended deadline set by the IRS to state income tax, sales tax, fuels tax, income tax withholding, and other tax filing obligations of its residents affected by the storms.

 

Illinois, as a general rule, follows federal tax filing extensions granted to victims of natural disasters, such as hurricanes and tornadoes. The state’s Department of Revenue will grant waivers of penalties and interest to those taxpayers who request abatement and explain why they cannot file or pay their state tax liabilities on time as a result of Hurricane Harvey and/or Hurricane Irma.

 

Kansas will follow the federal tax filing extension.

 

Kentucky will apply the federal tax filing extension to income tax, corporate income tax, and income tax withholding responsibilities of its taxpayers who are located in federal disaster areas.

 

Maryland will handle requests for filing extensions and relief from late-filing penalties and interest on a case-by-case basis. Affected taxpayers include anyone who lives or has a business in the federally declared disaster areas but has a responsibility to file Maryland withholding, sales and use, individual non-resident, corporate, admission and amusement, and alcohol and tobacco taxes.

 

Massachusetts will comply with the federal guidelines and automatically provide affected taxpayers with an extension to meet their state-level personal income and corporate excise tax obligations.

 

New Jersey has extended to Jan. 31, 2018, the tax filing deadlines for businesses and individual taxpayers who live or own a businesses in the disaster area, whose records are stored in the disaster areas and who serve as relief workers.

 

New Mexico has extended until Jan. 31, 2018, the deadlines for state taxpayers who live or have businesses located in the covered disaster areas to file personal, corporate, CRS (gross receipts, compensating, withholding), oil and gas, and combined fuel taxes. This extension will not apply to any payment of state-level taxes that are due.

 

North Dakota will follow federal guidelines and provide affected taxpayers with an extension to file income tax, sales and use taxes, oil and gas taxes, alcohol taxes, fuel taxes, and alcohol and tobacco taxes penalty and interest-free by Jan. 31, 2018.

 

Pennsylvania will follow the orders of the IRS and grant certain filing extensions for corporate taxpayers located in states that were directly impacted by the severe storms and flooding from Hurricane Harvey and Hurricane Irma. To avoid a late file penalty assessment, taxpayers should email a request for abatement to the Department of Revenue.

 

Rhode Island will handle requests for filing extensions and relief from late-filing penalties and interest on a case-by-case basis.

 

South Carolina will provide temporary relief to taxpayers affected by Hurricane Irma and located in Beaufort, Berkeley, Charleston, Colleton, Dorchester and Jasper counties. Additional counties may be included in the future. The state has extended until October 13, 2017, the deadline to file returns and pay any taxes that were originally due during the period of September 11, 2017 through October 13, 2017.

 

Texas will provide limited temporary filing extensions to businesses located in federally designated disaster areas who request such relief. However, the Comptroller’s office will grant an automatic extension to Jan. 5, 2018, to businesses in disaster areas with a 2017 franchise tax reports with valid extensions through Nov. 15, 2017.  Additionally, the state will accept requests for a 30-day extension of time for affected taxpayers who are required to electronically report sales and use tax as well as those taxpayers who are located in disaster areas outside of Texas.

 

Washington will work with businesses that request an extension to file or pay their taxes on time due to the impact of Hurricane Irma.

 

As more states respond to the devastation and recovery efforts of taxpayers located in the path of Hurricanes Harvey and Irma, individuals and business owners should seek the counsel of experienced state and local tax advisors to guide them through the technical requirements needed to qualify for state-level tax relief.

 

About the Author: Michael Hirsch, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant, where he specializes in state, local, and corporate taxation for business clients. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000, or via email at info@bpbcpa.com.

 

Tax Treatment of Casualty Losses and Casualty Gains from the 2017 Hurricanes by Arkadiy (Eric) Green, CPA

Posted on September 16, 2017 by Arkadiy (Eric) Green

Taxpayers are often unaware of how the tax laws treat property damage they sustain and losses they incur from natural disasters, such as the recent hurricanes across Texas, Florida and Puerto Rico. Many taxpayers will also be surprised to learn that, in situations where insurance proceeds or other recoveries exceed the tax basis of the damaged property, they may actually end up with a casualty gain. While casualty gains may be taxable, there are a variety of rules that can be used to defer or even completely avoid tax on these gains in certain cases.

When Should Taxpayers Claim Disaster Losses

When taxpayers suffer personal or business casualty losses in a jurisdiction that the federal government declares to be a disaster area (i.e., eligible for federal disaster relief by FEMA), they will have two options for potentially deducting uninsured and unreimbursed casualty losses:

  • Claim the loss on a tax return for the year in which the loss occurred (e.g., 2017 for victims of Hurricanes Harvey and Irma), or
  • Elect to deduct the casualty loss on an original or amended return for the tax year immediately preceding the disaster (e.g., 2016 for victims of Hurricanes Harvey and Irma).

The best option will depend on a taxpayer’s individual filing status, taxable income and other deductions available in each tax year. Claiming a disaster loss in the year before the casualty event occurred will typically result in an expedited tax refund, which recipients may use to pay for some immediate repair and rebuilding expenses. However, deducting the loss in the year in which it actually occurred may be more favorable if the taxpayer expects to be in a higher tax bracket for that year.

The IRS usually provides taxpayers affected by federally declared disasters with some tax relief. With regard to victims of Hurricanes Irma and Harvey, the IRS has postponed various tax filing and payment deadlines that occurred starting in September of 2017 until the end of January of 2018. As a result, most businesses and individuals affected by these hurricanes now have until January 31, 2018 to file their 2016 tax returns that were previously extended until September and October of 2017. This relief will provide eligible taxpayers and their tax advisors with some additional time that can be used to evaluate the options and, if so decided, claim the disaster losses on 2016 tax returns without having to go back and amend the 2016 returns.

Calculating Casualty Losses

For personal use property, such as a primary residence, the amount of casualty loss a taxpayer may claim is first determined by subtracting any insurance proceeds or other forms of reimbursement that he or she receives (or expects to receive) from the lesser of:

  • The decrease in fair market value (FMV) of the property as a result of the casualty; or
  • The adjusted basis in the property before the event (which is generally the owner’s original cost to acquire the property, plus closing costs and capitalized improvements, minus depreciation deductions, previously received insurance and other reimbursements and previous casualty loss deductions).

Individual taxpayers can deduct casualty losses related to personal-use property as an itemized deduction, but they must first reduce these casualty losses by:

  • 10 percent of their adjusted gross income, and
  • $100 per casualty event.

Casualty losses to business and income-producing properties are not subject to the above $100 and 10 percent rules. Rather, determining these losses requires taxpayers to subtract any insurance proceeds or other forms of reimbursement they receive (or expect to receive), as well as any salvage value from the property’s adjusted basis before the casualty event.

Treatment of Various Payments and Reimbursements

Insurance proceeds that taxpayers receive for insured losses generally reduce the amount of casualty loss deductions they may claim. However, this is not usually the case when taxpayers receive insurance payments to cover living expenses that result from a loss of use of their primary home or when government authorities disallow access to their homes.

Disaster-related assistance that taxpayers receive in the form of food, medical supplies and other forms of assistance typically do not reduce the amount of casualty loss, unless they are replacements for lost or destroyed property. Qualified disaster relief payments, grants and mitigation payments (e.g., payments received under the Robert T. Stanford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act) are generally excludable from gross income. Still, taxpayers who receive certain qualified disaster-relief payments related to repairs or replacement of destroyed property (e.g., home repair assistance and home replacement assistance payments received from FEMA under the Individuals and Households Program) must reduce the amount of any casualty loss related to the damaged or destroyed residence.

Taxpayers who recover amounts that they deducted as casualty losses in earlier years must report those recovery amounts as gross income in the year of receipt. However, this applies only to the extent that the original casualty-loss deduction actually reduced the taxpayer’s income tax in the year in which it was reported. If the amount of the future year recovery is greater than the amount of the original casualty loss deduction, the taxpayer must generally reduce the basis in the property by the amount of the excess. Additionally, if a required basis reduction exceeds the taxpayer’s remaining basis in the property, the taxpayer may recognize a taxable gain. As discussed in more detail below, some or all of this gain may be excluded or deferred under other provisions of tax code.

Substantiating Casualty Loss Deductions

Property owners have two options for determining the FMV before and immediately after a casualty event. They may hire a professional and competent appraiser who will assess the affected property in comparison with other similar properties. The appraiser should take into consideration the effects of any general market decline that may occur along with the casualty in order to limit the casualty loss deduction to the actual loss resulting from damage to the property.

Alternatively, taxpayers may rely on receipts for repairs to damaged property as evidence of a loss, as long as those repairs meet the following criteria:

  • The repairs are necessary to restore the property to its condition before the casualty,
  • The repairs are only for the damage suffered in the casualty,
  • The amount spent for repairs is not excessive, and
  • The value of the property after the repairs is not, due to the repairs, more than its value immediately before the casualty.

Taxpayers who have insurance must file a timely formal claim with their insurance providers, regardless of whether or not it puts them at risk of increased premiums or dropped coverage in the future.

It is recommended that taxpayers expecting to claim casualty losses take photos and/or videos of damaged property (e.g., roofs, windows, landscaping, fences, screening, etc.) as soon as possible after incurring a loss. Such photos and videos may be helpful if the IRS requests proof that property incurred damages as a direct result of a casualty event (such as a flood or a hurricane), as opposed to some form of “progressive deterioration” of property that may have occurred over time, such as steady weakening of a building due to normal wind and weather conditions.

Keeping good records of all repairs and insurance reimbursements is also very important. Taxpayers should be prepared to demonstrate their ownership in the property, the amounts of original basis and adjusted basis in the property, the property’s fair market value before the casualty event and the loss in value resulting from the casualty event.

Be Mindful of Casualty Gains that May be Taxable

When taxpayers receive insurance proceeds or other payments that exceed their adjusted tax basis in damaged and/or destroyed property, they are generally treated as having realized a gain for tax purposes (known as gain from an involuntary conversion). This result will likely surprise many taxpayers who will may feel that they had not gained anything economically. The tax code provides some assistance by allowing property owners to defer some or all of these casualty gains under the involuntary conversion rules. Also, where the property that suffered the casualty loss is a taxpayer’s principal residence, there is an opportunity for the taxpayer to completely avoid some or all of the gain.

To postpone recognition of tax on gain from an involuntary conversion, taxpayers may make a timely Section 1033 election to use insurance proceeds to restore property, reinvest in qualified replacement property that is similar or related in use, or replace involuntarily converted property held for business or investment with “like-kind” property. Generally, taxpayers can defer realized gain only to the extent that they actually reinvest the proceeds in qualified replacement or like-kind property with two years after the close of the first tax year in which they realize any part of the casualty gain, or three years for real property held for productive use in a trade or business and for investment. However, the replacement period is further extended to four years for a taxpayer’s principal residence located in a federally-declared disaster area. The IRS can also grant additional discretionary extension of replacement period (usually limited to a period of one year or less) if the taxpayer applies for an extension before the end of the regular replacement period.

If the property damaged by the casualty is the taxpayer’s principal residence, casualty gains of up to $250,000 ($500,000 for married couples) can generally be excluded from gross income under the rules that apply to sales or exchanges of principal residences. However, if the casualty gain on a home exceeds the amount of the principal residence exclusion, the excess amount may still be deferred under the involuntary conversion rules discussed above.

Conclusion

Tax rules dealing with casualty loss deductions and deferral of gain on involuntary conversions are complex but, when properly analyzed and applied, can provide substantial tax benefits for taxpayers. As the victims of Hurricane Irma and Hurricane Harvey begin the long process of recovery, the professional advisors and accountants with Berkowitz Pollack Brant stand ready to help navigate through a treacherous field of various tax and insurance issues, including assessments of damages to property and businesses, determining the amount of casualty loss deductions, and tax planning for deferral of gains on involuntary conversions.

 

About the Author: Arkadiy (Eric) Green, CPA, is a director of Tax Services with Berkowitz Pollack Brant, where he works with real estate companies, commercial and residential developers, property management companies, real estate investors and high-net-worth individuals to structure investments and complex transactions for maximum tax efficiency. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

Deadline for Reports of Foreign Financial Accounts Delayed for Victims of Hurricane Irma by James W. Spencer, CPA

Posted on September 15, 2017 by James Spencer

U.S. citizens and resident aliens who live in areas affected by Hurricane Irma will receive an extension of time to report their financial interest in or signature authority over foreign bank, securities or other financial accounts with an aggregate value exceeding $10,000 during any time in 2016.

 

The Financial Crimes Enforcement Network (FinCEN) announced that hurricane victims who live in president-designated disaster areas in Florida, Puerto Rico and the U.S. Virgin Islands, will have until January 31, 2018, to file their Report of Foreign Bank and Financial Accounts (FBAR) for the 2016 calendar year. Without this relief, FBARs would have otherwise been due on October 15, 2017.

 

Taxpayers who qualify for FBAR relief include those individuals and businesses located in any Florida county.  The FBAR filing extension also applies to taxpayers located on the islands of St. John and St. Thomas and in Puerto Rico’s municipalities of Culebra, Vieques, Canóvanas and Loíza.

 

About the Author: James W. Spencer, CPA, is a director of International Tax Services with Berkowitz Pollack Brant, where he focuses on a wide range of pre-immigration planning, IC-DISC, transfer pricing and international tax consulting issues for individuals and businesses. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

IRS Relief for Hurricane Irma Areas – Letter to Clients

Posted on September 13, 2017 by Joseph Saka

Dear Clients and Friends,

 

We are grateful that Hurricane Irma veered away from South Florida and hope that your family is safe and that the impact to your property was minimal.

 

Our offices in Miami, Boca Raton and West Palm Beach are open as of today, Wednesday, September 13, 2017.  Our office in Fort Lauderdale has sustained some minor water damage, and its opening will be delayed while repairs are underway.  The majority of our personnel is back in the office or working remotely.

 

IRS Deadline Extensions:

We are pleased to inform you that the Internal Revenue Service has granted extensions until January 31, 2018, for any tax return, extended tax return or tax payment that was or is due on or after September 4, 2017. This applies to any taxpayer who resides in or whose business is located in the Florida counties of Broward, Charlotte, Clay, Collier, Duval, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota and St. Johns. Additional counties may be added if they are designated by FEMA as disaster areas eligible for individual assistance.

 

Here is what this announcement means for those in the affected areas.

·       Calendar year partnerships, LLCs and corporations on valid extension through September 15, 2017, now have until January 31, 2018, to file their tax returns (Forms 1065, 1120 and 1120S).

·       Calendar year estates and trusts on valid extension through September 30, 2017, also have until January 31, 2018, to file their tax returns (Form 1041).

·       Individual taxpayers on valid extension through October 16, 2017, now have until January 31, 2018, to file their tax returns (Form 1040).

 

We expect most, if not all, states to follow the IRS extended deadlines for state income tax filings that are due after September 4, 2017.

 

Additionally, the quarterly individual and trust/estate estimated 2017 income tax payments due September 15, 2017, and January 15, 2018, do not have to be paid until January 31, 2018. Similarly any corporate or foreign partner withholding estimated 2017 income tax payments due on or after September 4, 2017, can be postponed without penalty or interest until January 31, 2018.

 

These extensions will apply automatically to any taxpayer whose address of record with the IRS is identified as being in a FEMA Disaster Area. The IRS has also included in this extension taxpayers located outside the FEMA Disaster Area whose tax practitioners or record keepers are located within the covered area.

 

Our firm intends to take advantage of this extension procedure for clients outside the FEMA Disaster Area. We will provide the IRS with a list of clients located outside of the disaster area who are eligible for the extension

 

During this time of year, we often receive requests from other tax practitioners who need certain tax forms, such as partner and shareholder Schedule K-1s or trust beneficiary statements, which we prepare for our clients and are necessary for non-client tax return filings. We regret that we will not be able to issue these forms before the filing deadline if they were not yet completed prior to Hurricane Irma.

 

Under current circumstances, the IRS has announced that it will work with taxpayers who cannot meet the September and October filing deadlines because their required records are prepared by firms located within the FEMA-designated disaster area. Taxpayers who live outside the FEMA Disaster Area but qualify for relief and are assessed a penalty for filing late can request abatement by contacting the IRS at 1-866-562-5227 and explaining that our firm is inside the FEMA disaster area.

 

We are grateful that the IRS has provided this extension. We feel confident that with the additional time granted to file, we can carefully evaluate clients’ FEMA Disaster Area-related tax planning opportunities and have more time to assess the financial impact of damages and other uninsured losses, if any.

 

We hope all affected by the hurricane are recovering quickly and want you to know that we are here to help.

Post-Hurricane Irma Message for Firm Members

Posted on September 12, 2017 by Joseph Saka

Our Miami, Boca Raton and West Palm Beach offices will officially open tomorrow, Wednesday, September 13.   We are connected and all offices are air conditioned.   The Ft. Lauderdale office should be avoided due to water damage which is already being remediated.

Many firm members are still without power and taking care of properties.  We understand that school is still out and we welcome your children and families, although it will be tight with people relocating from the Ft. Lauderdale office. If you do decide to bring your family members to the office we recommend that you bring things to entertain them and pack a lunch as we are uncertain as to how many restaurants are currently open in each area.

If you cannot make it in for travel or other reasons, please let Celia know ASAP. We understand that many people will be traveling back to South Florida in the next few days. Do not feel pressured. The safety of our firm members and their families remains our top priority.

Karina worked last week as the storm was bearing down to process payroll so there will be no delay in receiving your paycheck.  The HelpDesk will be open from 8 am to 6 pm. this week should you need assistance while working remotely or in the offices.

When entering your time for Hurricane Irma office closures and recovery please use the following process:

  • For Hurricane Irma office closures on September 7, 8, 11 and 12, from the Timesheet Details screen: Code: 9050, Service: Time Off, Analysis: 9260 Office Closed/Jury Duty
  • For those who cannot safely make it back to the office, are unable to work remotely or those who need time in the coming weeks to deal with insurance, repairs or other issues, we are providing you with two options: (1) you can take the time off as PTO or (2) you can make up the time by October 31, 2017.  If you choose one of these options, please let Celia and your supervisor know.   To enter your time for this option from the Timesheet Details screen: Code: 9050, Service: Time Off, Analysis: 9340 Time Off For Hurricane.  Please note that this applies only to staff who cannot make it into the office or cannot work remotely.
  • If you are making up the time, enter your time worked for the entire day and enter a negative entry for the hours being made up into code 9340.  For example, your time for Thursday is 12 hours billable.  Enter 12 hours to client XXXX and 4 hours negative to code 9340.  4 hours will come out of the time off for hurricane.  Your net hours for the day will be 8.00.

 

The IRS has announced a tax extension for impacted counties in Florida but we still have work to do and we need to connect with clients. We will be sending another client communication piece shortly.

 

Please remember to respond to the firm member status email or text ASAP.   And remember that if you need assistance, please call the Hotline at 305-960-8954 or reach out to Celia directly.

IRS Offers Tax Relief to Victims of Hurricanes in Texas, Florida, Puerto Rico and the U.S. Virgin Islands by Karen A. Lake, CPA

Posted on September 12, 2017 by Karen Lake

Taxpayers who were affected by Hurricane Irma and who live in federally declared disaster areas of Florida, Puerto Rico and the U.S. Virgin Islands will receive automatic tax filing and payment relief from the IRS. The relief program is the same as granted to victims of Hurricane Harvey.

 

Filing Extensions

 

Under the IRS’s Hurricane Relief programs, eligible taxpayers will have until Jan. 31, 2018, to pay their quarterly estimated tax payments that are typically due on September 15 and January 16. In addition, victims who received an extension to file their individual income tax returns on Oct. 16, 2017, will now have until the end of January 2018 to make their 2016 filings. However, any tax payments related to an individual’s 2016 returns should have already been paid to the IRS.

 

Businesses located in the storm’s path will also receive a three-month extension to file their quarterly payroll and excise tax returns by Jan. 31, 2018. In addition, the IRS will waive penalties on payroll and excise tax deposits due on or after Aug. 23, 2017, and before Sept. 7, 2017, as long as businesses made the deposits by Sept. 7, 2017. Should an affected business receive a late filing or late payment penalty notice from the IRS during the postponement period, it should contact its tax accountant or call the telephone number on the notice to abate the penalty.

 

Taxpayers eligible Hurricane Irma relief include those who live or own businesses in all Florida counties. Relief is also extended to taxpayers located on the islands of St. John and St. Thomas and in Puerto Rico’s municipalities of Culebra, Vieques, Canóvanas and Loíza.

 

For victims of Hurricane Harvey, the IRS’s tax relief program applies to those individuals and businesses located in the following counties: Aransas, Austin, Batrop, Bee, Brazoria, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller and Wharton.

 

Additional counties may be added in the future as the Federal Emergency Management Agency (FEMA) continues its assessment of storm damages.

 

Taxpayers Located outside the Disaster Area

 

The IRS may provide tax filing and penalty relief to certain taxpayers who are outside of the designated disaster areas. This can include businesses whose records are located in the covered areas and/or workers affiliated with qualifying organizations that are assisting with relief efforts. Qualifying taxpayers should contact their tax accountants or call the IRS directly to confirm their eligibility.

 

Claiming Casualty Losses

 

Victims of Hurricane Irma or any federally declared disaster area may be able to deduct certain property damages on their federal tax returns in the year the loss occurred or they may apply the loss to the previous year. The amount of casualty losses a taxpayer may claim is reduced by the amount of reimbursement they receive or expect to receive from their property insurance carrier and other potential amounts. Therefore, it is critical that victims file timely claims for property losses with their insurance carriers before claiming casualty losses on their federal income tax returns.

 

Calculating Casualty Losses

 

The IRS offers tips to help taxpayers calculate casualty losses based upon cost basis of the property, the current market value (FMV) of the property, insurance reimbursements and the use of the property. However, it is of great value for taxpayers to consult with their tax advisors to confirm or refute loss estimates made by insurance adjusters and substantiating lost business profits in order to defend their claims and recover damages.

 

Additional Financial Assistance for Storm Victims

 

In addition to providing storm victims with income and payroll tax relief, the IRS is also making it easier for affected taxpayers to receive loans and hardship distributions from their employer-sponsored retirement savings plans. The agency is treating Hurricane Irma as an “unforeseeable emergency” and lifting the rules for sponsors of 401(k), 403(b) and 457(b) plans to make loans and hardship distributions to plan participants. Taxpayers should remember, however, that any hardship distribution that does not include already-taxed amounts will be includible in gross income. The distribution will also be subject to an additional 10 percent tax if the employee is under the age of 59 ½. Hardship loans, which are typically limited to $50,000 or half of a vested balance, will not be taxed as long as the employee pays the money back to the plan according to a repayment schedule.

 

About the Author: Karen A. Lake, CPA, is SALT specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where to helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

 

 

 

Post-Hurricane Irma Message for Clients

Posted on September 12, 2017 by Joseph Saka

Dear Clients and Friends.

 

It is our sincerest hope that you weathered Hurricane Irma safely and with minimal or no damage to property.

 

Our ability to communicate with our clients and co-workers continues to be difficult.  We are currently assessing the extent to which our offices are accessible and operational at all four of our South Florida locations.  Many of our firm members evacuated to other locations, some out of state, and now need to travel back to their homes.  Others who remained in, or near, our communities are still without utilities and are unsure of their ability to find the gasoline needed to drive to our offices.

 

For our tax clients with pending tax returns, we continue to monitor communications posted by the IRS regarding extensions of time to file business returns which are currently due September 15, 2017.

 

As we assess our circumstances, it is apparent that we will not be able to meet the September 15th deadline for many of our clients.  Typically the IRS grants extensions of time to file for taxpayers whose homes, businesses and business records reside or are maintained in locations that have been declared Major Disaster Areas.  The IRS typically bootstraps the granting of these administrative extensions to areas designated by FEMA for “Individual Assistance.” To date FEMA has not specifically identified any counties for Individual Assistance as it appears that their priority is to work with municipalities to secure local infrastructure.  Consequently, we may not know if the administrative extension has been granted until after the deadline.

 

In the absence of an automatic extension, taxpayers can still have any penalties for late filing and payment abated by establishing reasonable cause.  We are confident that the IRS will take positions favorable for Florida filers.

 

For our calendar year clients holding estimated tax payment vouchers, the granting of these administrative extensions would also allow you to defer your third-quarter 2017 estimated tax payment that is otherwise due this Friday, September 15th.

 

We recommend that you hold off sending the payment if you have not already done so until Thursday, September 14, 2017.  If the IRS announces an administrative extension, we will let you know and you could choose to hold your payment until the extended due date and use the funds for now to assist with hurricane costs.

 

The declaration of a disaster area may provide other tax advantages that, in combination with a late filed or amended return, may allow you to recognize 2017 losses on your 2016 return.  Once you have had a chance to assess and measure any hurricane-related losses that will not be covered by insurance you may choose to ultimately file or amend your 2016 return to take these losses in 2016 which could provide a refund or reduction of your 2016 taxes. Assuming the IRS grants an extension as we expect, we will be assessing such opportunities as we prepare your returns for your review.

 

Finally, please keep in mind that we are available to help consult with you regarding other matters pertaining to hurricane damages, such as IT recovery consulting or business interruption losses.

 

Please contact us if you need assistance in these or other areas.  We want you to know that we are here to help you and although we may be temporarily out of touch, your tax and business needs are still our priority.

 

 

Hurricane Irma Update

Posted on September 06, 2017 by Joseph Saka

Our office are closed in anticipation of  Hurricane Irma. Our firm members’ connectivity to the office and their ability to respond to this email or return phone calls will be impacted by our need to prepare for the storm and potentially evacuate to safer locations. We will respond as quickly as we can under the circumstances.

If you are a tax client with a tax return still pending, it is our sincerest hope that we will be able to deliver your return in time to meet the deadline. However, we cannot predict the effect Irma will have on our ability to complete and deliver these returns. Should the storm pass without impacting our community, we will continue to work remotely on delivering all returns and we will respond to your email or phone calls as quickly as possible.

Should the storm impact our community, our ability to communicate with you and to deliver your tax returns will likely be significantly impeded. If this is the case, please be advised that it is very likely that the IRS will grant an extension of time to file and pay any taxes due with the return and we feel very strongly that there will be no negative ramifications for late filing.

Our focus will continue to be the safety of our firm members and their families and we will keep you as apprised of the situation as it unfolds to the best of our ability. Please be safe and thank you in advance for your understanding as we face this challenge.

Business Owner To Do List Pre-Hurricane Irma by Sean Chari

Posted on September 05, 2017 by

As Hurricane Irma approaches, there are steps business can take that go beyond shuttering windows and creating an employee hotline.

 

Based on the current tracking timeline, South Florida will begin feeling the initial weather impact at the end of the week. That doesn’t mean that productivity is not already dipping as people are worried, distracted and thinking about their personal plans.

 

We have prepared a quick-hit guide for businesses that will enable speedy resumption of productivity after the storm and minimize delays if your physical office sustains damage.

 

·       Validate IT redundancy and backup systems:  Ensure that whatever disaster recovery plan you have is activated and functional.  This group should walk through the plan and make sure that everything is applicable and up-to-date.  A frequent issue is having an out-of-date contact lists and telephone numbers.

 

·       Identify and activate a disaster recovery and business continuity task force

 

·       Validate that remote access is setup for key employees.

 

·       Compile a list of open orders for the next 30 days.

 

·       Create a customer contact list and information regarding open and existing orders or projects for the next 30 days.

 

·       Check the generator. If you have an onsite generator, make sure that you have fuel and that it is operational.

 

·       Make copies of insurance documents and contact information. Consider giving more than one person copies.

 

·       Determine if you will initiate early payroll processing. Consider that access may be limited for a few days.  Even if the office is not working, employees need their paychecks.

 

·       Complete current orders and activities. Expect that employees may not be in office Thursday or Friday and possibly the beginning of next week

 

·       Communicate potential shipping delays or issues to clients early.

 

·       Compile a list of upcoming payables due within the next 30 days.

 

·       Compile contact information for your bankers.

 

We wish all of our clients and friends of the firm safety during the storm.

 

About the Author: Sean Chari is senior manager of IT security consulting and a technology advisor with Berkowitz Pollack Brant. He can be reached in the firm’s Ft. Lauderdale office at 954-712-7000 or by email at schari@bpbcpa.com.

 

 

 

 

IRS Offers Tax Relief to Victims of Hurricane Harvey, Tips for Other Disaster Victims by Karen A. Lake, CPA

Posted on September 01, 2017 by Karen Lake

The IRS announced a tax relief program for victims of Hurricane Harvey in Texas as well as other taxpayers who live outside of the disaster area but whose records are located in the affected region. Most taxpayers do not need to call the IRS to receive the relief; the agency automatically identifies and applies filing and payment relief to taxpayers whose address are in the covered disaster area.

Filing Extensions

Texas residents who live in federal-declared disaster areas will have until Jan. 31, 2018, to pay their quarterly estimated tax payments that are typically due on September 15 and January 16. In addition, victims who received an extension to file their individual income tax returns on Oct. 16, 2017, will now have until the end of January 2018 to make their 2016 filings. However, any tax payments related to an individual’s 2016 returns should have already been paid to the IRS.

Businesses located in the storm’s path will also receive a three-month extension to file their quarterly payroll and excise tax returns by Jan. 31, 2018. In addition, the IRS will waive penalties on payroll and excise tax deposits due on or after Aug. 23, 2017, and before Sept. 7, 2017, as long as businesses made the deposits by Sept. 7, 2017. Should an affected business receive a late filing or late payment penalty notice from the IRS during the postponement period, it should contact its tax accountant or call the telephone number on the notice to abate the penalty.

Taxpayers Located outside the Disaster Area

The IRS may provide tax filing and penalty relief to certain taxpayers who are outside of the designated disaster areas. This can include businesses whose records are located in the covered areas and/or workers affiliated with qualifying organizations that are assisting with relief efforts. Qualifying taxpayers should contact their tax accountants or call the IRS directly to confirm their eligibility.

Claiming Casualty Losses

Victims of Hurricane Harvey or any federally declared disaster area may be able to deduct certain property damages on their federal tax returns in the year the loss occurred or they may apply the loss to the previous year. The amount of casualty losses a taxpayer may claim is reduced by the amount of reimbursement they receive or expect to receive from their property insurance carrier. Therefore, it is critical that victims file timely claims for property losses with their insurance carriers before claiming casualty losses on their federal income tax returns.

Calculating Casualty Losses

The IRS offers tips to help taxpayers calculate casualty losses based upon cost basis of the property, the current market value (FMV) of the property, insurance reimbursements and the use of the property. However, it is of great value for taxpayers to consult with their tax advisors to confirm or refute loss estimates made by insurance adjusters and substantiating lost business profits in order to defend their claims and recover damages.

Additional Financial Assistance for Storm Victims

In addition to providing storm victims with income and payroll tax relief, the IRS is also making it easier for affected taxpayers to receive loans and hardship distributions from their employer-sponsored retirement savings plans. The agency is treating Hurricane Harvey as an “unforeseeable emergency” and lifting the rules for sponsors of 401(k), 403(b) and 457(b) plans to make loans and hardship distributions to plan participants. Taxpayers should remember, however, that any hardship distribution that does not include already-taxed amounts will be includible in gross income. The distribution will also be subject to an additional 10 percent tax if the employee is under the age of 59 ½. Hardship loans, which are typically limited to $50,000 or half of a vested balance, will not be taxed as long as the employee pays the money back to the plan according to a repayment schedule.

As Hurricane Harvey continues across other states, the IRS may announce additional relief programs. Storm victims should remain alert and assess their eligibility to take advantage of these forms of financial assistance.

About the Author: Karen A. Lake, CPA, is SALT specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where to helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.

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