TMTW #437 – TCJA Allows Bonus Depreciation on Purchase of Leased Vehicle

Tax and Money Tip of the Week:
TCJA Allows Bonus Depreciation on Purchase of Leased Vehicle
June 12, 2019 | No. 437


Before the Tax Cuts and Jobs Act (TCJA), your purchase of the vehicle you were leasing did not qualify for either Section 179 expensing or bonus depreciation. But times have changed.

The TCJA made two changes that mean 100 percent bonus depreciation is available on the vehicle you lease and then purchase, regardless of whether you purchase it during the lease term or at the end of the lease. The two technical reasons you can do this are as follows:

  1. During the lease, you had no depreciable interest.

 

  1. Bonus depreciation is now available on used property.

Technically, the two changes work like this:

  • While you were leasing the vehicle, you had no depreciable interest in the vehicle. The lessor depreciated the vehicle. You, the lessee, paid rent.

 

  • Your purchase of the vehicle that you were leasing is the purchase of a vehicle that you had NOT used under the bonus depreciation law, because you did not have a depreciable interest in it at any time.

Example. You pay $32,000 for a pickup truck that you have been leasing for business purposes. The pickup truck has a gross vehicle weight rating of 6,531 pounds, and your mileage log proves 90 percent business use. You may use bonus depreciation to deduct the $28,800 business cost of the pickup ($32,000 x 90 percent).

Note the difference: As with prior law, with Section 179 expensing, you get no additional deductions. But with bonus depreciation, you can expense your entire business cost.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #436 – Backdoor Roth IRA Opportunities Still Available After TCJA

Tax and Money Tip of the Week:
Backdoor Roth IRA Opportunities Still Available After TCJA
June 5, 2019 | No. 436

Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.

As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.

But if you earn too much, you’re completely barred from contributing to a Roth IRA unless you can use the backdoor Roth technique, which involves making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.

The backdoor Roth strategy has been around for a good nine years, and it has experienced no trouble that we are aware of, so we think it’s a good strategy. We also like the recent notations in the legislative history and the comments from the IRS spokesperson that show approval of the strategy.

Keep in mind that with some planning, you can avoid any taxes on the rollover. For example, if you have an existing traditional IRA, you can move those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no taxes.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #435 – Happy Memorial Day!

Tax and Money Tip of the Week:
Happy Memorial Day!
May 22, 2019 | No. 435


We would like to take the time to wish everyone a safe and happy Memorial Day!

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #434 – Don’t Claim Social Security at 62. Unless…

Tax and Money Tip of the Week:
Don’t Claim Social Security at 62. Unless…
May 15, 2019 | No. 434

Click Here to read about claiming Social Security from an article in The Wall Street Journal’.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next time

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TMTW # 433 – Get ready to launch a solo 401K retirement plan

Tax and Money Tip of the Week:
Get ready to launch a solo 401K retirement plan
May 8, 2019 | No. 433


Click Here to read an article about solo 401K plans.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #432 – Tax Reform Attacks Home Mortgage Interest Deductions

Tax and Money Tip of the Week:
Tax Reform Attacks Home Mortgage Interest Deductions
May 1, 2019 | No. 432

Tax Reform Attacks Home Mortgage Interest Deductions

The recent tax reform contains two big changes to how much you can deduct in mortgage interest for tax years 2018 through 2025:

  1. During this seven-year period, you may not deduct any interest on prior or current home equity debt, with certain exceptions.

 

  1. Also during this seven-year period, the maximum amount you may treat as acquisition debt for new homes purchased after December 15, 2017, is $750,000.

Exception alert. Your home equity loan may include acquisition or home-improvement debt, and that debt continues as deductible under the recent tax reform rules.

Example. Billy took out a $90,000 home equity loan in 2015. He used $50,000 to remodel portions of his home and used the remaining $40,000 for his daughter’s college tuition. Billy’s total home mortgages never exceeded $1.1 million. Under the new law, Billy may deduct five-ninths of his home equity loan interest in 2018.

Acquisition debt. When you buy your main home or a second home and take out mortgages secured by those homes, your mortgages are called acquisition debt. You can add acquisition debt when you improve your main or second home, and that new debt is secured by the home you improved.

Refinancing alert. Your acquisition debt does not increase when you refinance unless you use the new monies to improve the home.

Example. Tom bought a home in 2010 and took out a $500,000 mortgage that he secured with the home. In 2018, Tom has paid down his mortgage to $430,000, and his home has increased in value to $800,000. Tom refinances the home and takes out a new mortgage in the amount of $600,000, secured by the home.

If Tom uses none of the new money to improve his home, his mortgage interest deduction in 2018 is based on the $430,000 of mortgage principal that remained as of the date of his refinancing. To put this in perspective, your original acquisition debt never increases on that original home. To increase your debt eligible for the home mortgage interest deduction, you need to use the new debt to improve the home.

Ceilings. Because of tax reform, you now have two possible 2018 ceilings on your home mortgages that are eligible for the mortgage interest deductions.

$1.1 million. For indebtedness incurred before December 15, 2017, you may not deduct interest on more than $1.1 million in mortgages ($1 million in acquisition debt and $100,000 in home equity debt used for acquisition or improvements). The original $1.1 million ceiling is grandfathered for acquisition and improvement loans in existence before December 15, 2017.

Example. Sam took out his mortgages during 2013. Sam faces the $1.1 million ceiling in 2018.

$750,000. For home mortgage indebtedness incurred on or after December 15, 2017, you may deduct interest on no more than $750,000 of home mortgages.

Example. Jim took out his mortgage in 2018. He faces the $750,000 ceiling.

Exception. If you entered into a written, binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and you complete the purchase before April 1, 2018, you fall into the $1.1 million ceiling category.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #431 – NC REAL ID – Due October 1, 2020

Tax and Money Tip of the Week:
NC REAL ID – Due October 1, 2020
April 24, 2019 | No. 431

Click here to read an article in ‘The News and Observer’ regarding the REAL ID program.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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