TCJA 2018 “quick facts”

TCJA 2018 “quick facts”

• Seven tax brackets (mostly "3% lower" tax rates)
• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%
• Standard deduction: 
• MfJ      24,000
• Single  12,000
• HoH     18,000
• In TY2017, 70% of taxpayers used the standard deduction
• In TY2018, estimated 94% of taxpayers will use the standard deduction
• Rev. Reg. §1.163-8T - interest tracing - HELOC interest NO longer deductible
• Use form 8801 AMT credit from prior-year - carry forward to current year to take an AMT credit in current year, provided you have No AMT tax in the current year
• There's No longer a Pease phase-out on itemized deductions. No limitation on income for itemized deductions for TY2018
• C-Corp 21% tax rate on first dollar and last dollar. 
• No QBI deduction for C-Corp’s because they already have the low flat 21% tax rate
• 20% QBI deduction cannot exceed 20% of taxable income. 
• use the correct SIC code. IRS is tracking SIC code for QBI purposes 
• 20% deduction 
• Not allowed in Computing AGI 
• Does not reduce self-employment tax 
• Is Allowed as a deduction reducing taxable income
• Keep your business taxable income under $315,000 to get full QBI deduction
• Because not all states adopted new federal law, there will be federal and state differences on medical expenses and other itemized deductions such as the SALT deduction
• Gambling winnings/losses. 
• Mileage to and from the casino is deductible as part of your gambling losses.
• Losses cannot exceed winnings. 
• Gamblers still have to itemize to deduct losses.
• Vehicle depreciation 
• 1st  year  10,000 
• 2nd year  16,000 
• 3rd year     9,600
• Thereafter 5,760
• Switch the straight-line depreciation in year straight-line exceeds accelerated depreciation
• Capital gains tax
• No significant changes
• Rates don’t match brackets exactly
• STCG still ordinary income
• 15% LTCG rate starts at 38,600 for single. 77,200 for MfJ
• 20% LTCG rate starts at 425,800 for single. 479,000 for MfJ
• NOLs limited to 80% of Taxable Income
• DPAD §199 (Domestic Production Activities Deduction) Repealed
• Inventory - Businesses under $25 million gross receipts need NOT account for inventory under §471. May treat inventory as non-incidental Materials and Supplies
• Marriage penalty eliminated for couples earning under $400K
• §179
• Is NOT depreciation
• Expensed
• Unadjusted Basis of Property equals ZERO
• §1231 “Like-kind exchange” NOW only for Real Estate
• New $500 credit for dependents 17 years or older
• §529 now okay for tutoring grades K - 12 and private school
• Mortgage interest - deduction on debt only up to $750K
• SALT capped at $10K MFJ, $5K Single
• Beginning 2019 Alimony NO longer deductible
• Prior to 2019 alimony grandfathered
• ACA
• 3.8% NIIT (same)
• 0.9% Medicare tax (same)
• No more ACA penalty (for lack of health insurance) after TY2018
• AMT exemption phaseout thresholds:
• $1MM MfJ
• $500K Single
• Medical Expenses
• 7.5% for TY2017 and TY2018 
• 10%  for TY2019

Footnote:

• Steve’s three accounting rules:
• Never take too much depreciation
• Bank transfers are never taxable
• Federal Income Tax (FIT) is never deductible
• Four types of Assets
• Inventory
• Capital 
• Real Estate 
• Depreciable (§1231, §1245, §1250)

Have a Blessed Day.

50% Bonus Depreciation Permanently Extended: Faster Tax Write-Off for Equipment

50% Bonus Depreciation: Faster Tax Write-Off for Equipment 

• 50% Bonus depreciation in some form has been in place since 2008 during President George W. Bush’s tenure in the White House to help stimulate a lagging economy.
• Under "Bonus Depreciation", companies can deduct an additional 50% of the cost of an equipment purchase in the first year of service, on top of the regular depreciation schedule.
• 50% Bonus depreciation is eligible in 1st year of service only.
• Bonus depreciation must be taken: 
• AFTER any elected §179 deduction and 
• BEFORE any regular depreciation.
• 50% Bonus depreciation must be on: 
• New property, 
• NOT Used property, and 
• New-in-Service to the taxpayer.
• Illustration: Assume that in 2013, a taxpayer purchased new depreciable property and placed it in service. (Consider elected §179 expensing to the cost of the property to be 20,000).
• Property’s cost is 100,000, and it is 5-year property subject to 200%/DB/Half-Year (MACRS method/convention).
• §179 elected is 20,000
• Additional first-year (50% Bonus depreciation) depreciation allowed is 40,000. [50% x (100,000 - 20,000)] 
• The remaining 40,000 (100,000 - 20,000 - 40,000) of the cost of the property is depreciated under the rules applicable to 5-year property. 
• 8,000 is allowable as current year depreciation expense in 2013 (8,000 results from the application 200%/DB/Half-Year method and convention to the remaining 40,000). 
• Total depreciation deduction with respect to the property for 2013 is 68,000. The remaining 32,000 Adjusted Basis of the property will be recovered over the remaining life of the asset using applicable depreciation rules.
• Additional first-year depreciation deduction is allowed for both the regular tax and the alternative minimum tax (“AMT”).
• IRC §168(k). Additional first-year depreciation deduction is subject to the general rules regarding whether an item must be capitalized under §263A.
• 100% of the adjusted basis of qualified original-use property that meets the requirements for the additional first-year depreciation is eligible. 

H.R.4718 - To amend the Internal Revenue Code of 1986 to modify and make permanent bonus depreciation

Bitcoin News

Bitcoin

• New IRS guidance treats Bitcoins and other crypto-currencies not as money, but as property, for tax purposes and applies immediately to all returns. See the full text of Notice 2014-21. IRS Virtual Currency Guidance
• Regardless of what Bitcoin’s creators and promoters may say, as far as the IRS is concerned, bitcoin is not money or currency. The IRS will treat bitcoin holdings much like corporate stock or other property (IRS Notice 2014-21).
• Bitcoin are created by a digital “mining” process and is not backed or regulated by any government, central bank or other legal entity. Some claim this makes Bitcoin safer than traditional currency because its value can’t be manipulated by central banks or governments.
• Bitcoin can also be directly transferred anonymously across the Internet. This can make the Bitcoin a cheap way to settle international transactions because there are no bank charges to pay or exchange rates to deal with.
• No one has to accept Bitcoin as money. Nevertheless, a growing number of merchants are accepting them. In fact, a Manhattan real estate broker recently announced that it would start accepting payments in Bitcoin.
• Interestingly, people buy and sell Bitcoin for dollars on online exchanges — much like gold.
• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, Wage and Tax Statement, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
• Payments made using virtual currency will be subject to the same information-reporting rules as any other payment made in property.
• The IRS warns that taxpayers who treated virtual currencies in a manner inconsistent with IRS Notice 2014-21, before the date the notice was issued, will not get penalty relief, unless they can establish that their underpayment or failure to properly file information returns was due to "reasonable cause".

References:
inmanNEWS, "IRS’ Bitcoin Guidance Turns Every Transaction into a Reportable Capital Gain or Loss at Tax Time",  Stephen Fishman, Contributor, March 31, 2014

IRS Notice 2014-21

Journal of Accountancy, "New Guidance Clarifies Tax Treatment of Bitcoin and Other Virtual Currencies", Alistair M. Nevius, JD, March 25, 2014

Sale of Personal Residence

Sale of Personal Residence
Tax effects of selling a residence
The main issue is: the potential capital gains you will realize, and how much tax you may owe.  

When selling your primary residence, a portion of the gain realized on the sale (or perhaps all the gain) may be excluded from federal tax, if you meet certain current year IRS qualifying tests. 

This exemption of gain works as follows: 

1) The house sold must be your primary, qualifying residence for at least two years out of a five year period to get the full benefit.

2) The amount of gain that can be excluded from tax is up to $250,000 for a single filer, and up to $500,000 for joint  filers. 

3) This exclusion may be used once every two years.  In effect, if you sell one house and use the exclusion, you can buy another residence and start all over again.  This means you could conceivably buy and sell residences perpetually and  avoid all the capital gains taxes. 

How is the gain that is eligible for this exclusion calculated?  Basically, it is the residence sale price, less qualified closing costs (like real estate commissions, legal fees, etc.), less the original cost of the residence and all improvements put into it.  This gives you the net gain which is then compared to the $250,000 (or $500,000) exclusion amount.  If the calculated gain is less than the IRS allowance, there is no tax to pay.  If the gain is more, you pay tax on the differential amount. 

Note the two major differences between this new law (under IRC §312) and the old laws (under IRC §121 and §1034).  First, you no longer have to replace a residence with another.  There is no "buying up" option.  Second, there is no provision for any "once in a lifetime exclusion of gain" based on any age qualifications.  Rather, you are eligible for the $250,000/$500,000 exclusion on each qualifying residence you sell - as many times as it occurs in your lifetime.

Reference: Practice Enhancers, Able & Co.

Depreciation Primer

DEPRECIATION PRIMER
With few exceptions, most businesses have to deal with the issue of depreciation at one time or another.  Whether it be in connection with office furniture and equipment, vehicles, computers, buildings, or livestock, to name a few, this type of tax write-off comes into play.

What is depreciation anyway?  You probably know that it involves a tax write-off.  But it started unofficially long before we had income taxes in this country.  In a very shortened definition, depreciation is the calculated "wear and tear" of a business asset due to its use in the business.  Some assets last longer than others.  A building may last 40 years without major problems.  An electric drill may only last five years before becoming useless.  In effect, the useful life of the asset tends to vary according to its type and nature.

This is the original theory behind depreciation.  It represents how much of the asset's value must be replaced (or saved up) each year to eventually replace it or restore it to proper working order.  For a business, it is a form of a "reserve account."  This is the recognition that the asset will last longer than one year, and therefore its cost should be allocated over a period of its useful life instead of just in the year in which it was placed into use.

Why is it important?  For tax purposes, depreciation deductions help to offset some of your business taxable income, thus creating current year tax savings, and increasing your business cash flow.  In addition, for future budget purposes, a working knowledge of depreciation deductions allows you to know how much money to reserve for future replacement purposes of assets being used in your business. So an overview of this common business deduction is definitely in order.

Qualifying Depreciable Property
For tax purposes, depreciation represents an allowable deduction of a portion of an asset used in a trade or business or for the production of income.  To be depreciable, this property must meet three main tests, according to current rules:

It must have a "useful life" in excess of one year that is determinable.  In effect, it has to have a relatively predictable time period in which to wear out, become obsolete, deplete its value, etc.  Thus, antiques are usually not depreciable, but office equipment, and buildings are.  It has to be used in a business or for the production of income.  Generally speaking, to take depreciation deductions, you must show "incidents of ownership" of the asset:  legal title, or responsibility to pay for its upkeep, taxes, etc.  You can't usually depreciate someone else's property in other words.

There are two primary classifications of depreciable property: tangible and intangible.

Tangible property has physical substance; it can be touched, and seen.  Within this category is a further division between tangible "personal" property, and "real" property.  Real property is usually associated with realty–buildings, land(although land itself is not depreciable), improvements to such.  Personal property is an asset such as a machine, furniture, equipment, etc.

Intangible property is property that does not have true physical substance so it cannot be readily touched or seen.  A patent right, customer goodwill, a non-compete covenant, customer lists, and copyrights–to name a few–fall into this category. While these intangible assets do not tend to wear out like a piece of machinery, in the eyes of the IRS they do have an obsolescence, or loss of value feature, thus they are allowed to be written-off as a depreciable expense.

Depreciable Basis
Once the property qualifies to be depreciated, the next step is in determining how much of it qualifies; that is, what is its "depreciable basis."  For most qualifying assets, it is pretty straightforward:  The depreciable basis is what you paid for the item, or its cost.  Some adjustments to basis may be made if you then add to its cost (improvements to a building, for example).  On the opposite side would be basis reductions for such events as a casualty loss, or a partial sale of part of the asset.

By the way, if you pay for the asset on a time payment plan, or if you charge it, your basis is still the total cost, not just what you paid out in cash for the current year.  Thus, you may be able to charge a computer at the end of the year and still take a full depreciation deduction for it even if you haven't put out one single dollar yet.

However, there are a few instances where this basis calculation can be tricky.  This occurs when you haven't actually bought the item, or when you have owned it personally, and then start using it for a business later on.  In these cases, the basis to be used can vary.  If you inherited the asset, for instance, the basis is usually the fair market value of the item at the time of death–not necessarily its original cost.  So if you inherit a rental building from your grandfather, its depreciable basis may be higher or lower than the original cost depending on whether or not it had appreciated over the time your grandfather owned it.

If you received the asset as a gift, the basis determination is usually the LESSER of the original cost of the asset OR its fair market value when it was given to you.  An asset acquired involving a trade-in (like a vehicle) of another asset requires adjusting its basis to account for the value of the asset traded in.  If the asset traded in had already been depreciated, the new item's depreciable basis usually is its cost less the trade-in value obtained.

Many times you will convert an asset you already own into business use.  As an example, you may have owned a computer that you were using personally before you started your business.  Then you begin using the computer for the business.  The same may apply to a car.  In these cases, where you are changing the asset use to business purposes, its basis for this depreciation is usually calculated the same as a gift – it is the lesser of the adjusted cost basis or its fair market value at the time of conversion to business use.

When Depreciation is Claimed
The depreciable asset becomes qualified when it is placed into business use or for the production of income–not necessarily when it was originally bought. The IRS considers it being placed into use "when it is ready and available for a specific use...."

This can create some tax planning opportunities as to the timing of taking depreciation to offset some of your business income.  The key is to plan exactly when the asset is "ready and available" to start the qualifying depreciation calculation.

Important note:  Depreciation of a business asset is not really an election on your part.  The IRS position is clear.  If it was supposed to be depreciated, and it wasn't, the IRS still makes you take that depreciation amount into account when you dispose of the item.  This could result in more net taxes owed.

Depreciation Recovery Periods and Methods
As was mentioned earlier, depreciable assets have different useful life periods – some last longer than others.  This is the basis for the IRS use of different periods over which to calculate the depreciation amounts.  The shorter the allowable useful life, the larger the depreciation percentage that can be taken per year.

These useful life periods establish the number of years over which the basis of the property is depreciated or recovered.  Accordingly, IRS guidelines for these recovery periods are:

3-year  property:  Truck tractor units for over-the-road use, breeding hogs, racehorses more than 2 years old when placed into service, other breeding or work horses over 12 years old when placed into service.

5-year  property:  Automobiles, light duty trucks (under 13,000 lbs. GVW), other vehicles, computers & peripheral equipment, office machinery, breeding sheep and goats, cows (dairy or breeding), logging equipment, airplanes, various research & development property, heavy general purpose trucks (13,000 lbs. GVW or more).

7-year  property:  Office furniture, fixtures, etc., certain agricultural and horticultural structures (grain bins, silos & fences), or any property that doesn't readily fall into another class life.  All other horses not previously described.

10-year property:  Water transportation such as vessels, barges, tugs, certain fruit/nut bearing trees and vines (orchards & vineyards), certain single purpose agricultural or horticultural structures or livestock facilities.

15-year property:  Various depreciable improvements made to land such as fences, roads, shrubs, bridges, parking lots, drainage tile, water wells, etc.

15-year amortization:  For intangible assets acquired after 8/10/93, the capitalized costs are written-off. Items such as goodwill, patents, customer or supplier based intangibles,   franchise or trade name costs, non-compete covenants, copyrights, etc.

20-year property:  Farm buildings (including housing provided rent-free to employees for employers's convenience), municipal sewers.

Residential Rental Property:  Realty property that is a rental structure in which 80% or more of the gross rental income (or fair rental value) is for dwelling purposes.  This recovery period becomes 27.5 years.

Nonresidential Real Property:  Normally associated with commercial use purposes such as buildings.  The recovery period varies from 31.5 to 39 years depending on when the realty was placed into use.

Start-Up Costs:  These are initial costs incurred in finding, and starting up a business such as incorporation fees, research expenses, investigative costs, etc.  The write-off period is 60 months from the start of business.

Depreciation Methods
For most tangible depreciable assets acquired in the current year, the IRS approved method is the Modified Accelerated Cost Recovery System (MACRS).  It is a cross between an accelerated and straight-line depreciation calculation.  Therefore, the majority of depreciation calculations now must use this method.

However, there are some elections out of this method, and there are some depreciable assets that don't qualify for MACRS.  In that case, other methods may have to be used, such as certain straight-line methods, unit-of-production calculations, amortization periods, or others that the IRS would deem reasonable.  Similarly, before the IRS instituted the MACRS rules in 1986, there were numerous other methods including ACRS, and declining balance calculations.  The list was practically endless.

Nevertheless, all the depreciation methods attempt to do the same thing:  create a consistent methodology for writing-off a portion of the asset in question over its useful life.  The main difference among all of them is the amount per year that can be taken.  The accelerated methods tend to take more depreciation in the early years, and less later on.  A straight-line method tends to average the depreciation deduction equally over the useful life.  Bottom line, however, is that if you keep the asset in business use for its entire calculated useful life, all the methods tend to equal out.

The tax planning opportunities lie in trying to coordinate the maximum amount of depreciation deduction with tax bracket changes to get the most use out of the deduction.  So if your tax bracket were going to be higher in the earlier years of a depreciable asset's life, an accelerated depreciation method may be better than a straight line.  Or vice versa if your tax bracket were to be higher in the later years.

IRS Conventions:  Under MACRS rules, there are IRS rules as to when the depreciation deductions can begin.  Normally, the half-year convention is allowed for property other than rental and nonresidential real property.  In the half-year convention, all property is deemed to be placed into service or disposed of at the midpoint of that tax year.

A complication arises in the situation where more than 40% of the total cost of depreciable assets is placed into service during the last 3 months of the tax year.  In that case, the Mid-Quarter convention must be used.  The disadvantage here is that you are allowed substantially less depreciation deductions for the first year if you must use the Mid-quarter vs the Half-year convention.

So timing your tangible personal property purchases can make a difference in the first year's depreciation deduction.  There is also a possible way around the negative effects of this Mid-quarter convention by using a Section 179 election to be discussed next.

Special Section 179 Deduction
Along the lines of trying to use depreciation deductions for tax planning purposes, the IRS has a special provision related to tangible personal property used in a business in which you can elect to take an extra large chunk of depreciation deduction in the first year instead of over its remaining useful life.  This is the so-called Section 179 election(which relates to the IRS code section provision).

Under the 2012 rules, you are able to elect to take up to $139,000 of upfront depreciation deductions if you qualify–even if you get these depreciable business assets on the last day of the tax year.  As an example, if you bought a computer system for $138,000 on December 20, 2012, you could elect to write-off the entire cost on your 2012 tax return instead of depreciating it over 5 years. As you can surmise, this can be a significant last minute tax planning opportunity if it is handled correctly, and may be used to offset the effects of any IRS Mid-quarter convention limitations.

The main qualifying factors for this Section 179 election are as follows:

It must be tangible personal property used in a trade or business.  Realty doesn't count, nor does any property used only for the production of income (like a rental property). It's only for a trade or business. You must use the item more than 50% for business use, and allocate the item's cost accordingly.

You must have taxable income from the "active conduct of any trade or business during the tax year in question." In other words, if your total business income from all sources for the year ends up as a net loss, then you cannot add to this current year loss by electing Section 179 depreciation expense.

This election is reduced dollar for dollar in the situation where you place into use more than $560,000 of tangible personal property.  As an example, if you put $600,000 of machinery into use in 2012, then you could only take $99,000 worth of Section 179 depreciation expense ($139,000 less the $40,000 in excess of $560,000 limit).

If you use this election, it means you are expensing more of the asset up-front, so there is less to depreciate in the future years.  It is not an EXTRA amount of depreciation deduction you are being given.  Rather, it is an accelerated amount you are taking in the beginning.  From a tax savings analysis, it is a tax deferral technique as much as it is a tax savings technique.

Also, there are some so-called recapture rules which may come into play if you make this election and do not keep the asset in qualified business use for a designated time.  In that case, a portion of the deduction taken may have to be recaptured–and reported as income in another year.

However, this election can reduce your current year taxes considerably, thus freeing up more cash for the business.  It could also increase potential earned income credits for certain low income business filers; it can also help minimize IRS depreciation deduction limitations where the mid-quarter convention rules come into play.

Conclusion
Depreciation is an important consideration for most businesses.  With few exceptions it eventually comes into play.  The proper timing of the depreciation deduction, choosing allowable depreciation methods, and potential disposition options can have a positive impact on your tax situation.

Maintaining adequate records for the individual assets in order to verify the depreciable cost basis, the date placed into service, and the date if taken out of service are quite significant.  This can affect your potential tax liability, and can make a difference in the event of an audit.

The bottom line when it comes to depreciation deductions and tax planning is timing considerations.  Proper planning as to when you place the qualifying depreciable asset into use, what depreciable methods can be used, and your current vs future tax brackets can help maximize the benefits for your business.

Reference:  Practice Enhancers, Able & Co.

Home Office - Depreciation on Form 8829

Home Office - Depreciation on Form 8829

When using the Depreciation of Home Worksheet, Form 8829, for Business use of Home, when the home is sold, the taxpayer(s) must recapture any depreciation previously taken on the Home Office, and this is reported on Form 4797. Very seldom do we recommend using the depreciation option on an 8829. For obvious reasons, the gain is so small for the most part, and the disposition is a pain. It's not like other depreciation where you have to recapture "allowed or allowable". That being said, the correct treatment is disposing of the asset via form 4797. If you have the asset summaries from the previous years you should have all that you need to complete it. Don't forget to pro-rate the selling expense with the cost of the land.

Home Improvements

Use this List of Expenditures to help document additions to the cost of your home which will reduce the gain on the sale later on. Establish a permanent file which can be used to accumulate receipts for items on this list. (Includable in Tax Basis of Personal Residence).

OUTSIDE ADDITIONS & IMPROVEMENTS

Additional acreage or lots
Surveying of property
Additions to buildings: 
  Porch
  Wings
  Breezeway
  Garage
  Work shed or other outbuildings
  Aluminum/Vinyl siding
Roofing additions or replacement
Flashing
Terraces and patios
Cement staircase
Swimming pool
Septic tank or cesspool
Sewers-assessment & connection
Lamp post
Electrical outlets
Telephone outlets
Barbecue pit
Pathways & Walks
Driveway - paving, blacktopping, or gravel
Retaining walls
Fences and gates
Play yard
Clothes dryers
Waste collecting and burning apparatus
Mail box
Storm doors
Screens & screen doors
Termite proofing
Gutters, leaders, drain pipes and dry wells
Bird bath
Garden and grounds:
  Rototill soil
  Grading
  Topsoil & fill
  Fertilizers & condition
  Grass seed
  Plants, bulbs, seeds
  Trees
  Shrubs, bushes, vines
  Waterwell & pump
  Lawn sprinkler system
Trellis

INSIDE ADDITIONS & IMPROVEMENTS
Convert basement or attic into recreation room or bedroom
Inside walls:
  Altering and plastering
  Wood paneling
  Wall tiles
Room dividers & partitions
Ceiling (acoustical)
Replace or add stairs
Flooring - wood, tile, etc. linoleum
Cabinets, closet shelves, etc.
Bookcases & other built-in furniture
Cupboards
Closets
Fireplace mantel
Radiator covers
Ventilators
Window seats
Windows:
  Replacement
  Storm sash
  Weather stripping
Accessories and equipment:
  Kitchen:
    Counter tops
    Dishwasher
    Drain boards
    Food Freezer
    Garbage dispose
    Range
    Range hood
    Refrigerator
    Sinks
    Ventilator

INSIDE ADDITIONS & IMPROVEMENTS
   Laundry:
    Dryer
    Hot plate for boiling
    Ironer
    Mangle
    Sinks
    Tubs
    Ventilator
    Washing machine Hamper
    Linen chute
    Sorting table or counter
    Supply cabinets
    Drying racks
Bathrooms:
    Medicine cabinet
    Mirrors
    Shower cabinet
    Shower controls
    Towel racks
    Tub hanger
    Tub
    Bathtub sliding doors
Unit heater/Mechanical equipment:
    Heating & air conditioning
    Furnace and appurtenances
    Air conditioning
    Attic fan
    Boiler
    Circulating system
    Cooling equipment
    Fireplace heater
    Hot water heater
    Radiators & valves
    Space heater
    Warm air grills & register 

INSIDE ADDITIONS & IMPROVEMENTS
Electricity & lighting:
  Circuit boxes
  Fuse boxes
  Lightening rods
  Wiring system
  TV antenna & wiring
Plumbing & sanitation:
  Cold water pipe
  Copper tubing
  Floor drains
  Grease traps
  Hot water tank
  Hot water pipe
  Lawn sprinkling system
  Pumps
  Septic system
  Traps
  Vent pipe
  Water supply system
Hardware fixtures/locks:
  For cabinets/closets
  For doors
  For windows
  For curtains/draperies

Lighting fixtures
Communication:

  Call bells or chimes
  Intercom system
  Telephone raceways
  Fire or burglar alarm systems
Miscellaneous items:
  Dumbwaiter
  Garbage disposal
  Insulation:
    Ceilings
    Floors
    Pipe & duct
    Roof
    Walls

Selling Your Home

video courtesy: IRS Videos

Sale of Principal Residence

Sale of Principal Residence
The exclusion for gain on the sale of a principal residence provided for in the Taxpayer Relief Act of 1997 creates 100% tax-free home sale profits for the great majority of taxpayers who sell their homes.

This exclusion replaces the previous deferral-of-gain rule that required taxpayers to purchase a replacement home within certain time and price limits. It also replaces the once-in-a-lifetime exclusion of up to $125,000 of gain in a home sale for qualifying taxpayers age 55 and older.

The exclusion for home-sale profits Under current rules, a seller of any age, who has owned and used the home as a principal residence for at least two of the five years preceding the sale, may exclude from taxation up to $250,000 of profit, if single, and up to $500,000 if married filing jointly. Generally, the exclusion may be used only once every two years.

The law provides that married individuals may exclude up to $500,000 of profits if:
• Either spouse owned the home for at least two of the five years before the sale
• Both spouses used the home as the principal residence for at least two of the five years before the sale, and
• Neither spouse is ineligible for the exclusion because of the once-every-two-year rule, the other spouse may still claim the exclusion if he or she qualifies. However, the exclusion then cannot exceed $250,000.

If you can't meet the requirements
The law does contain some relief for those taxpayers who cannot meet the ownership and use rules or who have already excluded gain on a home sale within the two-year limit. If the failure to meet either rule is due to a job change, circumstances, a partial exclusion may be available. The partial exclusion is calculated based on the ratio of the two years that the requirements were met.