J.K LASSER'STM 1001 DEDUCTIONS AND TAX BREAKS 2017 Your Complete Guide to Everything Deductible Barbara Weltman Cover design: Wiley Copyright © 2017 by Barbara Weltman All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation Y ou should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 5724002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com Designations used by companies to distinguish their products are often claimed by trademarks In all instances where the author or publisher is aware of a claim, the product names appear in Initial Capital letters Readers, however, should contact the appropriate companies for more complete information regarding trademarks and registration ISBN 978-1-119-24886-6 (paper) ISBN 978-1-119-24887-3 (ePDF) ISBN 978-1-119-24908-5 (ePub) Printed in the United States of America 10 CONTENTS Introduction Chapter 1: You and Your Family Marital Status Personal Exemption Dependency Exemption Child Tax Credit Earned Income Credit Dependent Care Expenses Adoption Costs Foster Care Child Support Alimony ABLE Accounts Chapter 2: Medical Expenses Employer-Provided Health Insurance Premium Tax Credit Health Coverage Tax Credit Itemized Medical Expenses Self-Employed Health Insurance Deduction Long-Term Care Coverage Flexible Spending Arrangements for Health Care Health Reimbursement Arrangements Health Savings Accounts ABLE Accounts COBRA Coverage Medicare Continuing Care Facilities and Nursing Homes Accelerated Death Benefits Decedent's Final Illness Medical Insurance Rebates Chapter 3: Education Costs FAFSA Submissions Employer-Paid Courses Scholarships, Fellowships, and Grants American Opportunity Credit Lifetime Learning Credit Job-Related Education Tuition and Fees Deduction Student Loan Interest Interest on U.S Savings Bonds Coverdell Education Savings Accounts Qualified Tuition Programs (529 Plans) ABLE Accounts Seminars Educational Travel Cancellation of a Student Loan Penalty-Free Withdrawals from IRAs Government Reimbursements Chapter 4: Your Home Mortgages Mortgage Interest Tax Credit Home Equity Loans Points Refinancing Prepayment Penalties Late Payment Penalties Mortgage Insurance Reverse Mortgages Cancellation of Mortgage Debt Penalty-Free IRA Withdrawals for Home-Buying Expenses Real Estate Taxes Cooperative Housing Minister's Housing Allowance Home Sale Exclusion Moving Expenses Energy Improvements ABLE Accounts Chapter 5: Retirement Savings Traditional IRAs Roth IRAs IRA Rollovers MyRAs 401(k) and Similar Plans Self-Employed Retirement Plans SEPs SIMPLEs Retirement Saver's Credit Custodial/Trustee Fees Employer-Paid Retirement Planning Advice Charitable Transfers of IRA Distributions Loans from Retirement Plans Chapter 6: Charitable Giving Cash Donations Appreciated Property Donations Used Clothing and Car Donations Intellectual Property Donations Real Estate Donated for Conservation Purposes Bargain Sales Volunteer Expenses Tickets to Fund-Raisers, Raffles, and Sporting Events Membership Fees to Nonprofit Organizations Student Exchange Program Donor-Advised Funds Appraisal Fees and Other Costs IRA Transfers to Charity Record Keeper for Your Charitable Giving Chapter 7: Your Car Business Use of Your Personal Car Employer-Provided Car Vehicle Registration Fees Car Accidents and Other Car-Related Problems Donating Your Car Credit for Electric Drive Vehicles Chapter 8: Investing Penalty on Early Withdrawal of Savings Loss on Bank Deposits Capital Losses Capital Gains and Qualified Dividends Worthless Securities Loss on Section 1244 Stock Margin Interest and Other Investment-Related Borrowing Safe-Deposit Box Rental Fee Subscriptions to Investment Newsletters, Online Services, and Apps Computers and Tablets Used for Investments Fees for Financial Advice Amortization of Bond Premium Municipal Bonds Savings Bonds Gain on the Sale of Small Business Stock Gain on Empowerment Zone Assets Foreign Taxes on Investments Exercise of Incentive Stock Options Losses from Investment Ponzi Schemes Chapter 9: Travel Business Travel Temporary Work Assignments Conventions Medical Travel Charitable Travel Moving for Work Educational Travel National Guard and Military Reservist Travel Frequent Flier Miles Recordkeeping for Travel Expenses Chapter 10: Entertainment Meals and Entertainment Company Holiday Parties and Picnics Sporting and Theater Events Home Entertainment Entertainment Facilities and Club Dues Recordkeeping for Meals and Entertainment Expenses Gambling Losses Chapter 11: Real Estate Vacation Home Home Office Timeshares Rentals Low-Income Housing Credit Rehabilitation Credit Deduction for Energy-Efficient Commercial Buildings Leasehold, Restaurant, and Retail Improvements Conservation Easements Special Breaks for Certain Disaster Victims Chapter 12: Borrowing and Interest Home Mortgage Interest Student Loan Interest Borrowing from Retirement Plans Investment-Related Interest Business Interest Accrued Interest on Bond Purchases Below-Market Loans Bad Debts Debt Forgiveness Chapter 13: Insurance and Catastrophes Casualty and Theft Losses Disaster Losses Disaster Relief Payments Damages Disability Coverage Accelerated Death Benefits Legal Fees Appraisal Fees Damage from Corrosive Drywall Identity Theft Identity Theft and Tax Relief Chapter 14: Your Job Job-Hunting Expenses Dues to Unions and Professional Associations Work Clothes and Uniforms Subscriptions to Professional Journals, Newsletters, and Podcasts Chapter 15: Your Business Start-Up Costs Equipment Purchases Payment for Services Supplies Gifts Hobby Losses Self-Employment Tax Deduction Home Office Deduction Farming-Related Breaks Domestic Production Activities Deduction Other Business Deductions Business Credits Net Operating Losses Chapter 16: Miscellaneous Items State and Local Income Taxes State and Local Sales Taxes Certain Federal Taxes Tax Refunds Tax Preparation Costs Tax Audits Legal Fees Gifts You Receive Inheritances Life Insurance Proceeds Estate Tax Deduction on Income in Respect of a Decedent Rebates and Discounts Government Benefits Alternative Minimum Tax Appendix A: Items Adjusted Annually for Inflation Appendix B: Checklist of Tax-Free Items Appendix C: Checklist of Nondeductible Items Nondeductible Items Index EULA List of Tables Introduction Table I.1 Table I.2 Table I.3 Chapter Table 1.1 Table 1.2 Table 1.3 Table 1.4 Table 1.5 Table 1.6 Table 1.7 Table 1.8 Table 1.9 Chapter Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Chapter Table 3.1 nondeductible courses, examples of not a new line of work Job-related expenses, miscellaneous examples of deductible Jury duty, pay turned over to employer A Late payment penalties, mortgages Leasehold improvements Legal fees deductible fees, examples of insurance and catastrophes nondeductible fees, examples of Legislation: Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) Employee Retirement Income Security Act (ERISA) OF 1974 Foreign Account Tax Compliance Act (FATCA) Life insurance proceeds Lifetime learning credit higher education student, eligible Loans See also Mortgage(s); Student loans below-market from retirement plans Local taxes, income Long-term care coverage deduction, conditions for exclusion, conditions for Low-income housing credit low-income housing building A M&IE See Maximum federal allowance for lodging and for meals and incidental expenses (M&IE) MAGI See Modified adjusted gross income Margin interest and other investment-related borrowing borrowing for investment purposes net investment income Marital status Maximum federal allowance for lodging and for meals and incidental expenses (M&IE) MCC See Qualified credit certificate (MCC) Meals and entertainment See also Entertainment ‘associated with’ test company holiday parties and picnics directly related test entertainment facilities and club dues fifty percent limitation gambling losses high-low substantiation rate home entertainment lavish and extravagant meal allowance, standard meals away from home per diem rate, maximum federal recordkeeping for sporting and theater events Medical expenses See also Health insurance ABLE accounts and accelerated death benefits COBRA coverage continuing care facilities and nursing home decedent's final illness employer-provided health insurance flexible spending arrangements (FSAs) for health care health coverage tax credit health reimbursement arrangements Health Savings Accounts (HSAs) itemized long-term care coverage medical insurance rebates Medicare premium tax credit rebates, medical insurance recordkeeping self-employed health insurance deduction Medical insurance rebates Medical savings accounts (MSAs) See Archer Medical Savings Accounts Medical travel costs, examples of Medicare: fringe benefits and Health Savings Accounts (HSAs) and medical expenses and Medicine and drugs Membership fees to nonprofit organizations Military benefits tax-free benefits, examples of Military reservist travel Minister's housing allowance Modified adjusted gross income (MAGI): American opportunity credit and retirement saver's credit limit ROTH IRAs limit savings bonds, interest limit student loan interest tuition and fees deduction limit Mortgage interest tax credit qualified home qualified mortgage credit certificate Mortgage(s) See also Borrowing and interest; Home; Home mortgage interest; Home office; Loans acquisition indebtedness credit certificate, qualified debt, cancellation of debt, secured by home distressed homeowners insurance late payment penalties mortgage interest tax credit personal liability prepayment penalties reverse two-residence limit Moving expenses deductible distance test nondeductible relocation of job or business time test MSAs See Archer Medical Savings Accounts (MSAs) Municipal bonds state income tax treatment of municipal bond interest MyRAs having a job income limits A National Guard and military reservist travel Net operating losses (NOLs) carryback and carryforward periods Nonprofit organizations, membership fees to Nursing homes A Performing artists special rule for married individuals Personal exemption Points deductibility, immediate deductibility, over the term of the loan Ponzi schemes, losses from Premium tax credit, health care coverage application for credit coverage through an exchange household income limits information returns unaffordable employer coverage Prepayment penalties, mortgages Prizes Production activities deduction, domestic Professional associations, dues to Professional services, medical Programs and treatments, medical A Qualified charitable distributions (QCFs) Qualified credit certificate (MCC) Qualified tuition programs (QTPs) See 529 plans A Raffles Real estate about conservation easements disaster victims, special breaks for certain donated for conservation purposes energy-efficient commercial buildings, deduction for home office leasehold, restaurant, and retail improvements low-income housing credit rehabilitation credit rentals taxes timeshares vacation home Rebates medical insurance Recordkeeping: charitable giving meals and entertainment expenses medical expenses travel expenses Refinancing Refunds, tax Rehabilitation credit historic structures minimum rehabilitation pre-1936 buildings Rentals depreciation rates expenses, examples of deductible passive loss limitations real estate safe-deposit box rental fee Report of Foreign Bank and Financial Accounts (FBAR) Required minimum distributions (RMDs) Restaurant improvements Retail improvements Retirement planning advice, employer-paid Retirement plans, loans from Retirement saver's credit individual, eligible MAGI limit qualified retirement savings contributions Retirement savings See also Individual retirement accounts (IRAs) about charitable transfers of IRA distributions custodial/trustee fees 401(k) and similar plans individual retirement accounts, traditional IRA rollovers loans from retirement plans MyRAs retirement planning advice, employer-paid retirement saver's credit Roth IRAs self-employed retirement plans SEPs SIMPLEs Reverse mortgages RMDs See Required minimum distributions (RMDs) Rollovers to IRAs and retirement plans Roth IRAs See also Individual retirement accounts (IRAs) conversion to MAGI limit A Safe-deposit box rental fee Sales tax, state and local Savings, penalty on early withdrawal Savings accounts: ABLE accounts (see ABLE accounts) health savings accounts (see Health Savings Accounts (HSAs)) Savings bonds, interest on bonds, eligible MAGI limit qualified use of redemption proceeds taxpayer, eligible Scholarships S corporations Section 1244, stock loss on dollar limit Section 1244 requirements Securities, worthless totally worthless value in the prior year Self-employed health insurance deduction Self-employed individuals: Archer Medical Savings Accounts (MSAs) and business use of personal car education, job-related health insurance deduction retirement plans self-employment tax deduction Seminars SEPs (simplified employee pensions) Services, business payments, reasonable performance of work timeliness of payment worker classification SIMPLEs (savings incentive match plans for employers) elective deferral limit required employer contribution Small business stock, gain on sale of conditions for qualifying holding period Small employers, Archer Medical Savings Accounts (MSAs) and Social Security and Medicare (FICA) taxes: benefits exempt from reducing your Solar power Sporting and theater events ‘associated with’ test ‘directly related’ test skyboxes and private luxury boxes tickets to sports events benefitting charity SSI See Supplemental Security Income Start-up business costs examples of State benefit programs, contributions to State/local government officials paid on a fee basis State taxes: income sales Student exchange program Student loans: cancellation interest on loan qualifications MAGI limits Subscriptions: to investment newsletters and online services to professional journals, newsletters, and podcasts Supplemental Security Income (SSI) Supplemental unemployment benefits, repayment of Supplies, business deductible, examples of A Tablets, used for investments Tax audits about exhaust administrative remedies IRS position not substantially justified net worth requirements reasonable reimbursement substantially prevail against the IRS Tax counseling for the elderly (TCE) Tax credits See Credits Taxes See also Social Security and Medicare (FICA) taxes credits (see Credits) federal foreign mortgage interest and real estate refunds sales self-employment state and local Tax-free items, checklist of Tax preparation costs examples of Tax refunds identity theft and TCE See Tax counseling for the elderly (TCE) Temporary work assignments away from home definition of regular place of business Tests, medical Tickets to fund raisers, raffles, and sporting events school athletic events, special limit for Time deposit accounts, penalty on early withdrawal of savings Timeshares Trade Adjustment Assistance (TAA), health coverage tax credit Travel business charitable conventions educational frequent flier miles medical moving expenses National Guard and military reservist recordkeeping for temporary work assignments Treatments and programs, medical Tuition and fees deduction educational institution, eligible MAGI limit no education credit qualified expenses taxpayer, eligible Tuition programs (529 plans): expenses, qualified tuition programs, qualified A Unemployment benefits, repayment of supplemental Unions, deductible payments to USDA-OCD See U.S Department of Agriculture-Office of Community Development U.S Department of Agriculture-Office of Community Development (USDA-OCD) U.S Department of Housing and Urban Development (HUD) Used clothing and car donations U S savings bonds See Savings bonds, interest on A Vacation home: business deductions business deductions, limited passive loss limitations tax-free rental income Vehicles See Car(s) VISTA See Volunteers in Service to America Volunteer expenses deductible unreimbursed expenses Volunteers in Service to America (VISTA) A Wash sale rule Work See Job Work clothes and uniforms examples of deductible cleaning expenses examples of professionals having deductible work clothes and uniforms Work tools and equipment examples of deductible Wrongful incarceration, damages for WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA .. .J. K LASSER''STM 1001 DEDUCTIONS AND TAX BREAKS 2017 Your Complete Guide to Everything Deductible Barbara Weltman Cover design: Wiley Copyright © 2017 by Barbara Weltman... Theft and Tax Relief Chapter 14: Your Job Job-Hunting Expenses Dues to Unions and Professional Associations Work Clothes and Uniforms Subscriptions to Professional Journals, Newsletters, and Podcasts... feel taken to the cleaners every time you view your paycheck after withholding for federal income taxes (not to mention state income taxes as well as Social Security and Medicare taxes) And taxes