Temporary Room Renting Tax Tips

Many taxpayers often leave town when a local festival or event draws in tourists. If you’re one of them, you might be able to rent out your house for a few days and earn tax-free income.

Taxpayers who rent out their own homes for fewer than 15 days per year receive tax-free income from the rental. To qualify for this tax-free treatment, you must rent out your home for 14 days or less and personally use the home for 15 days or more during the year.

Please note, no deduction is allowed for any rental-related expense, such as getting the house professionally cleaned before or after your visitors arrive. However, deductions of mortgage interest and property taxes are allowed on Schedule A for the entire year.

Convert Your Traditional IRA to a Roth

Rollover How To

If Roth IRAs are held long enough, the distributions are tax-free, meaning you may never have to pay tax on the earnings. This factor alone makes many taxpayers consider rolling their traditional IRA contributions over to a Roth IRA. While you certainly can do this, it’s import-ant to note that the rules for rollover contributions differ from the rules for making regular contributions to a Roth account. Following are a few guidelines.

Who can make rollover contributions?

Anyone, no matter the filing status or modified adjusted gross income (MAGI), is eligible to roll over a traditional IRA and certain employer accounts to a Roth IRA.

How much can you roll over?

There is no limit. The rollover can come from one or more accounts and contain both deductible and nondeductible contributions.

When can you make a rollover?

There is no “grace period” in which to make a rollover. Unlike Roth IRA contributions that can be made until the due date of the return, a rollover cannot be made retroactively. Therefore, the amounts rolled from a traditional IRA to a Roth IRA during the tax year are accounted for on the tax return for that tax year.

How are contributions taxed?

Deductible contributions from a traditional IRA that are rolled into a Roth IRA are generally taxed in the same year the rollover occurs. The nondeductible amounts are rolled over into a Roth IRA tax free.

There are plenty of other special rules that apply to rollovers to a Roth IRA, so if you’re looking to take this action, please contact
me for more information.

4 Tips for Year-End IRA Planning

Individual Retirement Accounts, or IRAs, are important vehicles for you to save for retirement. If you have an IRA or plan to start one soon, there are a few key year-end rules that you should know. Here are the top year-end IRA tips from the IRS:

  1. Know contribution and deduction limits.
    You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. You have until April 18, 2016, to make an IRA contribution for 2015. In some cases, you may need to reduce your deduction for your traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level.
  2. Avoid excess contributions. 
    If you contribute more than the IRA limits for 2015, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2015 tax return (including extensions).
  3. Take required distributions. 
    If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2015. That deadline is April 1, 2016, if you turned 70½ in 2015. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.
  4. IRA distributions may affect your premium tax credit.
    If you take a distribution from your IRA at the end of the year and expect to claim the PTC, you should exercise caution regarding the amount of the distribution.  Taxable distributions increase your household income, which can make you ineligible for the PTC.  You will become ineligible if the increase causes your household income for the year to be above 400 percent of the Federal poverty line for your family size. In this circumstance, you must repay the entire amount of any advance payments of the premium tax credit that were made to your health insurance provider on your behalf.