The Kiplinger Tax Letter has received lots of reader tax questions.
Here is just a sampling of questions asked about rental income, state and local taxes, bonds, and deductions for charitable contributions….and answers from Joy Taylor, editor of the Tax Letter.
Some of Your Tax Questions Answered
Charitable contribution deduction
Q: Will the charitable write-off be expanded?
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A: It’s possible. Under present law, only filers who itemize on Schedule A can deduct donations they make to charity.
A bipartisan group of lawmakers wants to make the deduction available to everyone. More specifically, they would let nonitemizers deduct charitable contributions in an amount equal to as much as one-third of standard deductions for 2023 and 2024, meaning the write-off could spike to $4,617 for single filers and $9,233 for couples for 2023 returns filed next year.
The odds are low this year of passing legislation with such high deductible amounts. But there’s a bit better chance of reviving the $300/$600 write-off for nonitemizers.
Gifting savings bonds
Q: Can I gift an I bond to my son before it matures and avoid an income tax hit?
A: No. Like most people, you’ve likely deferred reporting for federal income tax purposes the interest that you earned on the savings bond. Gifting away EE or I bonds to someone else before those bonds mature will accelerate the interest reporting. It doesn’t matter whether the bonds are reissued in the recipient’s name. You still owe U.S. tax on all the previously deferred interest in the year of the gift.
QBI deduction for rental property income
Q: Can I get a 20% QBI deduction for the income I earn on my rental property?
A: It depends. Self-employed individuals and owners of LLCs, S corporations, and other pass-through entities can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes of more than $364,200 for joint filers and $182,100 for single taxpayers and head-of-household filers.
Schedule E rental income may be eligible for the write-off in some cases. But applying the QBI rules to income from rentals of real estate is thorny. IRS regulations say the rental activity must generally rise to the level of a trade or business, a standard that is based on each taxpayer’s particular facts and circumstances.
Alternatively, there is a safe harbor if at least 250 hours a year of qualifying time are devoted to the activity by the taxpayer, employees, or independent contractors. Time spent on repairs, collecting rent, negotiating leases, and tenant services counts. Hours put in driving to and from the real estate aren’t included for this purpose.
Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Meeting the safe harbor will let you treat the rental activity as a trade or business for QBI purposes.
Business deduction for state and local property taxes
Q: I am self-employed and pay state and local property taxes in my business. Can I deduct them on Schedule C?
A: Yes. Schedule A itemized deductions for state and local taxes, including income taxes (or sales taxes) and property taxes, are capped at $10,000. However, property and sales taxes are fully deductible for individuals engaged in a business or a for-profit activity.
Self-employed people can fully write off property and sales taxes they pay in their business on Schedule C. Farmers can take them on Schedule F. And landlords can deduct on Schedule E property taxes paid on rental realty that they own.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
