Income Tax Changes Heads-up

There is a group of significant tax law changes taking effect or already in place from recent rulings. They aren’t all related to investments, but we all have more things going on than real estate investment. This is a quick overview, so check with your accountant if you see something that could apply to your financial situation.
1. No more bankruptcy exemption for inherited IRAs – The Supreme Court unanimously held that inherited IRAs do not qualify for a bankruptcy exemption. Creditors can now go after those funds because the court rules that the exemption is specifically for “retirement” funds, and that status disappears with death and inheritance.
2. You can purchase “longevity annuities” in retirement plans and IRAs – IRAs and 401k accounts can now use a limited portion of the account to purchase longevity annuities that guarantee income for life for those of advanced age (usually 80 years+) to address the risk of outliving their assets.
3. Enforcement of “responsible person penalty” being ramped up – If you’re responsible for collecting and remitting payroll taxes, be aware that the IRS is stepping up enforcement of the recovery penalty equal to 100% of the taxes due from trust funds.
4. Seller financing can backfire tax-wise – A recent tax case involved a married couple who sold their home with seller financing at a big gain with installment payments and a big balloon payment at the end. They used the $500,000 capital gains exclusion in the sale. The buyers defaulted and the sellers took back the home. The IRS ruled that they had to report the previously excluded $500,000 gain on the reacquisition.
5. More trust/estate expenses escape deduction limit – The IRS allows itemized deductions only to the extent that they exceed 2% of AGI, Adjusted Gross Income. Check the recently updated new and final regulations issued by the IRS which list more trust/estate expenses that are deductible in computing an estate or trust’s AGI.
Staying on top of the thousands of tax rules is difficult even for those whose job it is. An accountant is an absolute must for the investor.