By: Craig Anderson, President of C.E. Anderson & Company
I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.~Arthur Godfrey
It’s that time of the year again.
It’s not good enough that we have to deal with post-holiday debt, and the incessant cold and snow of one of the worst winters in recent history; we now must reminisce, with accuracy, the financial life events of 2013 and reduce them to figures to be placed in hundreds of lines on multiple forms in the annual ritual we call Filing Our Income Tax Returns!
As always, it is a good idea to learn from the mistakes of others and reading a reminder of the oft overlooked deductions is a good place to start. As a reader of this Relo Blog, you or others you know are probably involved with, or have been, relocated. So let’s look at a few items surrounding moving and selling property that we should know.
- Many relocatees move as part of an employer sponsored program, so many costs are paid for by the employer. Often overlooked are move related expenses not covered by the employer, or not known by those individuals moving without sponsorship;
- Cost of packing supplies, boxes, tape, bubble wrap, UPS or FedEx charges for pre-shipping any household goods. And yes, HHGs include our pets!
- Tips paid to the van line driver and crew.
- Any special packing, crating, dismantling, appliance hook-up, etc.
- $.24 a mile (2013 rate) for driving not only your first but your second or third cars to your new location, plus tolls.
- Lodging on route including your last night in your old location and first night at your destination. But no meals! So bring a sandwich.
- HH goods from another location are deducted too, with certain restrictions.
- Storage of HHG for up to 30 days, and the cost of putting things in and out of storage. In and out costs are always deductible regardless of the length of time goods are in storage.
Just remember that you can only deduct the expenses you paid for. No deduction for expenses for which you were reimbursed or for Qualified Moving Expenses paid directly by your employer. (See IRS Code 217 for a definition of QMEs.)
- Remember these fun facts concerning Mortgage Points and MIP;
- Did you know that if the seller of your new house agreed to pay your mortgage points in lieu of reducing the sales price that the IRS lets YOU take a deduction for those points even though the seller paid them? Yea, I didn’t think you did.
- Mortgage points paid as part of a re-finance are normally deducted over the life of the loan UNLESS the loan was used for home improvement – then take them now.
- In the year you sell your home deduct the entire remaining balance of your points paid.
- If you paid a premium for mortgage insurance you may be entitled to a mortgage interest deduction for a portion of the premium allocated to 2013. Enjoy this treat – it expired 12/31/2013 so this is the last year to take it! Oh I forgot – if your adjusted gross income was over $110,000 – you don’t get the deduction. Sorry.
Other Random Thoughts:
- If you claimed a Homebuyer Credit in 2008 – 2010 you may need to pay some of it back if your home ceased being your principle residence in 2013. (See IRS Form 5404)
- Repayment is always required for a Credit taken in 2008.
- Repayment for 2009 and 2010 Credits is only required if your home ceased being your primary digs – if sold, your payback is NOT required if you had no realized gain.
- Remember you need to adjust your home’s Purchase Basis as well as its Selling Basis to determine the gain on sale. If you don’t understand this, look it up! IRS Publication 523.
- Prior to 2007, if you were unfortunate enough to lose your house and the bank had to write off some of your outstanding mortgage debt, you received a 1099 from them because the IRS views cancellation of debt as a taxable event! (Talk about kicking the dog when he’s down) Since then, the Debt Relief Act stopped the taxability of relieved debt. If you had a Short Sale or if your bank wrote down your debt in 2013 you will still receive a 1099-C but the forgiven debt is not taxable. This benefit also expired 12/31/2013 and we do not know if Congress will extend it again.
- The maximum you need to contribute to the OASDI portion of FICA tax is 6.2% of $113,700 of earnings in 2013 or $7,049. If you worked for more than one employer during the year you may have had more than that amount withheld (in total). So remember to take a credit on line 69 of your 1040 return for the excess.
As bad as it may seem the U.S. Tax rates are less than many other countries in the world. So, pay the piper and enjoy the dance, but just don’t overpay!