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Monica Rebella, CPA/IAR - President

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Feature Articles


- President signs Highway Bill revising return due dates, making other compliance change

- Busy tax agenda awaits Congress’ return after August recess

- Developments continue to impact the mortgage interest deduction

- FAQ: When must individuals pay estimated taxes?

- How Do I? Form a partnership for tax purposes

- September 2015 tax compliance calendar








President Signs Highway Bill + Busy Tax Agenda Awaits Congress' Return + Developments Continue to Impact The Mortgage Interest Deduction


President Signs Highway Bill Revising Return Due Dates, Making Compliance Change

President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 on July 31.

The Act revises some important return due dates, overrules a Supreme Court tax decision, revises the employer shared responsibility requirements in the Affordable Care Act (ACA), and includes other tax compliance measures.

Although the highway and transportation funding portion of the Act is temporary (Congress must come up with another funding bill by late October), the tax compliance measures are permanent.

Return due dates

The Act changes the filing deadlines for a number of major tax forms. For the most part, however, these changes first apply to 2016 tax year returns that are due in 2017. Nothing will change for the return filing season coming up in early 2016.

The Act provides that the due date for partnerships to file Form 1065, U.S. Return of Partnership Income and Schedule K-1s, Partner's Share of Income, will move from April 15 to March 15 (or to the 2 ½ months after the close of its tax year for fiscal-year taxpayers). Under the Act, the filing deadline for regular C corporations moves from March 15 (or the 15th day of the 3rd month after the end of its tax year) to April 15 (or the 15th day of the 4th month after the end of its tax year).

For C corporations with tax years ending on June 30, the filing deadline will remain at September 15 until tax years beginning after December 31, 2025, when it will become October 15. An automatic six-month extension will be available for C corporations, except for calendar-year C corporations through 2025, during which an automatic five-month extension until September 15 will generally apply.

A number of other filing extension deadlines will also change, starting in 2017.

FBAR. The Act shifts the due date for the FBAR (Report of Foreign Bank and Financial Accounts, FinCEN Form 114) from June 30 to April 15 with a maximum extension of a six-month period ending October 15.

Overstatement of Basis

In the Home Concrete case, the Supreme Court ruled that an overstatement of basis does not result in an omission of income for statute of limitations purposes. Under the Act, the six-year limitations period applies where any overstatement of basis results in a substantial omission (25 percent or more) of income. The Act is effective for all returns for which the normal assessment period remained open as of the date of enactment and for returns filed after that date.

Affordable Care Act

The new Act revises the ACA's employer shared responsibility requirements ("employer mandate"). Under the Act, an individual is not taken into account for purposes of the ACA's employer shared responsibility requirements for applicable large employers (ALEs) if the individual has coverage under TRICARE or a VA health care program. This Act provides that this treatment may be applied retroactively, to months beginning after December 31, 2013.

Mortgage Reporting

Mortgage servicers file Form 1098, Mortgage Interest Statement, to report certain information to the IRS. Included in the Act are additional reporting requirements for mortgage servicers, including the amount of the outstanding mortgage principal, the address (or description of property without an address) of the property, and loan origination date. The additional reporting requirements apply to returns and statements the due date for which (determined without regard to extensions) is after December 31, 2016.

Stepped-up Basis

The Act requires consistency between estate tax value and the "stepped-up basis" of assets acquired from a decedent. Executors of large estates will be required to disclose to the IRS information identifying the value of each interest received.

Additional Provisions

Pension funds. The Act extends through 2025 the ability of qualified employers to transfer excess pension assets to fund retiree health benefits and retiree life insurance.

Military veterans. Under the Act, a veteran's eligibility to contribute to a health savings account (HSA) is not affected by receipt of medical care for a service-connected disability.

Fuel taxes. The Act uniformly imposes taxes on liquefied natural gas (LNG), liquefied petroleum gas (LPG), and compressed natural gas (CNG) on an energy-equivalent basis.


Last month in USA Today I was quoted in 2 articles on tax topics & if you missed it you can download the articles below.  Monica

9 Commonly Overlooked Tax Breaks by Jeff Reeves - Special to USA Today (click here to download) 9 Tax Tips For The Self Employed by Jeff Reeves - Special to USA Today (click here to download)



Busy Tax Agenda Awaits Congress' Return After August Recess

Congress returns to work in September with a full agenda of tax legislation. Lawmakers will search for revenue to pay for a long-term federal highway and transportation bill, debate the fate of popular but temporary tax breaks, and decide on a funding level for the IRS.

As passage of the Surface Transportation Act in late July showed, tax law changes can appear suddenly and can make significant changes.

Highway Bill

The Surface Transportation Act is merely a temporary extension of federal highway funding and is scheduled to sunset before year-end. To pay for the Surface Transportation Act, Congress revised some return due dates, imposed additional reporting requirements for mortgage servicers, and passed other new and expanded tax compliance measures. Now, lawmakers must find more revenue sources to pay for any longer extension or a multi-year highway and transportation bill. Among the revenue proposals are a one-time, 14-percent tax on untaxed foreign earnings of U.S. companies (supported by President Obama). Some lawmakers have endorsed a hike in the federal gas tax (currently at 18.4 cents per gallon).

Tax Extenders

The Senate Finance Committee (SFC) approved before the August recess a two-year extension of many expired tax breaks, known as tax extenders. These include the state and local sales tax deduction, teachers' classroom expense deduction, incentives for biodiesel and alternative fuels, the Production Tax Credit, the Work Opportunity Tax Credit, and more. Unless extended, these incentives will be unavailable when taxpayers file their 2015 returns.

The House, however, has taken a different approach to the extenders. The House, unlike the SFC, has not grouped all of the extenders in one package. Since January, the House has approved several stand-alone bills extending or making permanent some of the extenders, such as the state and local sales tax deduction. These bills have been referred to the Senate where they have yet to be taken up; and the likelihood of the Senate ever taking them up is unclear. If the past is any guide, lawmakers are likely to defer action on the extenders until close to the end of the year.

IRS Budget

President Obama and the GOP-controlled Congress have very different proposals to fund the IRS for fiscal year (FY) 2016. The President has proposed to fund the IRS at more than $13 billion for FY 2016. The House Appropriations Committee, in contrast, approved a $10.1 billion budget and the Senate Appropriations Committee came in at $10.475 billion. Whatever level of funding the House and Senate agree on, it is expected to be below the President's request, and lower than the IRS's budget for FY 2015. The IRS struggled with customer and practitioner service during the 2015 filing season, which it attributed to budget cuts. How the agency will react to more budget cuts, and how they may impact the 2016 filing season, remains to be seen.

One area where the administration and Congress may find some agreement is funding for cybersecurity at the IRS. In August, the IRS reported that the May 2015 breach of its online Get Transcript app was larger than originally believed. According to the IRS, as many as 220,000 more taxpayers may have had their information compromised or stolen. In an update to his FY 2016 budget request, President Obama urged Congress to increase funding for IRS cybersecurity. The President called for an extra $242 million, reflecting a 72 percent increase over FY 2015.

If you have any questions about Congress' Fall agenda, please contact our office.


Developments Continue to Impact The Mortgage Interest Deduction

The mortgage interest deduction is widely used by the majority of individuals who itemize their deductions. In fact, the size of the average mortgage interest deduction alone persuades many taxpayers to itemize their deductions.

It is not without cause, therefore, that two recent developments impacting the mortgage interest deserve being highlighted. These developments involve new reporting requirements designed to catch false or inflated deductions; and a case that effectively doubles the size of the mortgage interest deduction available to joint homeowners. But first, some basics.

Mortgage Interest Deduction Ground Rules

Mortgage interest - or "qualified residence interest" - is deductible by individual homeowners. Qualified residence interest generally includes interest paid or accrued during the tax year on debt secured by either the taxpayer's principal residence or a second dwelling unit of the taxpayer to the extent it is considered to be used as a residence (a "qualified residence").

Qualified residence interest comprises amounts paid or incurred on acquisition indebtedness and home equity indebtedness. Acquisition indebtedness is debt that is both:

1)  secured by a qualified residence, and
2)  incurred in acquiring, constructing or substantially improving the residence.


Home equity indebtedness is any debt secured by a qualified residence that is not acquisition indebtedness to the extent of the difference between the amount of outstanding acquisition indebtedness and the fair market value of the qualified residence.

A qualified residence for purposes of the home mortgage interest deduction can be the principal residence of the taxpayer, and one other residence selected by the taxpayer. In other words, the deduction is limited to interest payments on two homes.

Qualified residence interest is subject to several dollar limitations:

The total acquisition indebtedness (principal) on which qualified residence interest is deductible is limited to $1 million ($500,000 in the case of married individuals filing separately).

The total amount of home equity indebtedness (principal) taken into account in calculating deductible qualified residence interest may not exceed $100,000 ($50,000 in the case of married individuals filing separately).

Information reporting. Mortgage service providers have been required to report only the following information to the IRS annually with respect to individual borrower:

 - the name and address of the borrower;
 - the amount of interest received for the calendar year of the report; and
 - the amount of points received for the calendar year and whether the points were paid directly by the borrower.

The amount of interest received by a mortgage service provider is reported on Form 1098, Mortgage Interest Statement, to the IRS. Form 1098 must also be furnished by the mortgage service provider to the payor on or before January 31 of the year following the calendar year in which the mortgage interest is received.

More Detailed Form 1098 Coming

The 2015 Surface Transportation Act (aka the Highway bill), which was signed into law on July 31, 2015, will require that Form 1098, Mortgage Interest Statement, filed with the IRS and provided to homeowners, include information on:

 - the amount of outstanding principal of the mortgage as of the beginning of the calendar year,
 - the address of the property securing the mortgage, and
the loan origination date.


These items are in addition to the information that parties were already required to provide to the IRS and payors under existing law.

The Government Accountability Office (GAO) had expressed concern that the information reported on Form 1098 is insufficient to allow the IRS to enforce compliance with the deductibility requirements for qualified residence interest. This criticism has included in particular, but not limited to, the dollar limitations imposed on acquisition indebtedness and home equity indebtedness.

While the modifications are intended to boost compliance with the deductibility requirements for qualified residence interest, they also impose a new burden on mortgage service providers. To give mortgage service providers time to reprogram their systems, the additional reporting requirements apply to returns and statements required to be furnished after December 31, 2016.

Joint Ownership

Another major development impacting on some homeowners' mortgage interest deduction also took place this summer. Reversing the Tax Court, a panel of the Court of Appeals for the Ninth Circuit has found that when multiple unmarried taxpayers co-own a qualifying residence, the debt limit provisions apply per taxpayer and not per residence (Voss, CA-9, August 7, 2015). The question was one of first impression in the Ninth Circuit, the court observed.

Background. The taxpayers, registered domestic partners, obtained a mortgage to purchase a house (the Rancho Mirage property). In 2002, the taxpayer refinanced and obtained a new mortgage. That same year, the taxpayers purchased another house (the Beverly Hills property) with a mortgage, which they subsequently refinanced and obtained a home equity line of credit totaling $300,000. The total average balance of the two mortgages and the line of credit during the tax years at issue was approximately $2.7 million.

Both taxpayers filed separate income tax returns. Each individual claimed home mortgage interest deductions for interest paid on the two mortgages and the home equity line of credit. The IRS calculated each taxpayer's mortgage interest deduction by applying a limitation ratio to the total amount of mortgage interest that each petitioner paid in each taxable year. The limitation ratio was the same for both: $1.1 million ($1 million of home acquisition debt plus $100,000 of home equity debt) over the entire average balance, for each tax year, on the Beverly Hills mortgage, the Beverly Hills home equity line of credit, and the Rancho Mirage mortgage. The taxpayers challenged the IRS's calculations but the Tax Court ruled in favor of the agency.

Court's analysis. Code Sec. 163(h)(3), the court found, provides that interest on a qualified residence, by a special carve-out, is not considered "personal interest," which would otherwise be nondeductible by taxpayers who are not corporations. A qualified residence is the taxpayer's principal residence and one other residence of the taxpayer which is selected by the taxpayer for the tax year and which is used by the taxpayer as a residence.

The court further found the Tax Code limits the aggregate amount treated as acquisition indebtedness for any period to $1 million and the aggregate amount treated as home equity indebtedness for any period to $100,000. In the case of a married individual filing a separate return, the debt limits are reduced to $500,000 and $50,000.

Looking at the language of the Tax code, the court found that the debt limit provisions apply per taxpayer and not per residence. There was no reason not to extend this treatment to unmarried co-owners, the court concluded. Thus, each of the homeowners were entitled to the $1 million limit.

Whether this holding will hold up in jurisdictions other than the Ninth Circuit (California and other western states, including Hawaii), and whether it will apply to joint ownership situations for vacation homes, for example, remains to be tested.

If you have any questions regarding how best to maximize your mortgage interest deduction, please do not hesitate to contact this office.




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As always you can call me at 714-619-0667 if you have any questions about investing, retirement or any other tax & accounting related issues. 


Regards, Monica Rebella, CPA/IAR

President, Rebella Accountancy

Disclaimer:  The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities. With any investment you should carefully consider the investment objectives, potential risks, management fees, and charges and expenses before investing.  Past performance is not a guarantee of future results. The investment return and principle value of any investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

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Monica Rebella, CPA/IAR | President - Rebella Accountancy | Certified Public Accountants
507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236
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