President Signs Highway Bill
+ Busy Tax Agenda Awaits
Congress' Return +
Developments Continue to Impact The Mortgage Interest
Signs Highway Bill Revising Return Due Dates, Making
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
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
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 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.
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
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.
month in USA Today I was quoted in 2 articles on tax
topics & if you missed it you can download the articles
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)
Agenda Awaits Congress' Return After August Recess
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
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).
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.
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.
Continue to Impact The Mortgage Interest Deduction
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,
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 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
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
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
Qualified residence interest is subject to several dollar
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
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
- 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
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
- 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
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.
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
To read this & my other articles online go to
and click on the Newsletter section.
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