Owners of Shares in Housing Cooperatives May Escape $10,000 Limit on Tax Deduction Due to Drafting Error in TCJA

In Politico’s Morning Tax on February 21, 2019 a potential loophole regarding property taxes paid by owners of units in housing cooperatives is discussed.  As the article notes:

So why might living in a co-op give taxpayers a way around the SALT cap? In short, co-op owners don’t pay a property tax, or actually buy a property as it’s usually understood, as Pro Tax’s Brian Faler reported. That matters because lawmakers bypassed the section of the tax code that does allow co-op owners to deduct their version of property taxes — essentially a fee paid to the corporation that owns the property, which then pays the taxes — when drafting the TCJA.

The article does caution it’s “not apparent whether co-op owners can assume they’re in the clear, at least for now, on property taxes.”  But what exactly is the issue?

Read More

IRS Reiterates Its Position on Deducting Prepaid Property Taxes

The battle lines are being drawn between the IRS and various states upset about the $10,000 limit on state and local taxes.  The most recent evidence of this is found in an IRS Information Letter to New Jersey’s Attorney General (INFO 2018-009). 

This letter deals with a planning option pushed by some states for their residents at the end of 2017, allowing for the prepayment of 2018 property taxes before the new $10,000 deduction limit came into the law for 2018 returns.  The IRS issued a news release (IR 2017-20) on December 27, 2017 that indicated the IRS’s position, limiting any deduction only to taxes actually assessed before that date.

Image copyright artursz / 123RF Stock Photo

Read More

Washington Excise Tax on Marijuana Sales a Reduction in Sales Proceeds and Therefore Not a Deduction Blocked by IRC §280E

With the increasing number of states enacting statutes that authorize legal marijuana sales in various circumstances, the provisions of IRC §280E are becoming an increasingly frequent topic in both court cases and IRS guidance.  Chief Counsel Advice 201531016 looks at the impact of an excise tax imposed by the state of Washington on sales of marijuana on federal taxes.

Under IRC §280E no deductions or credits (aside from cost of sales) are allowed to taxpayers trafficking in federally controlled substances, of which marijuana is one.  That is true regardless of whether the sale of such a substance is deemed legal in the state in question.

Read More