January/February 2017 Tax Tips

These brief tips cover how the IRS has made it easier for taxpayers to obtain an extension for retirement plan rollovers, ways to protect taxpayers from charity scams and how to make a partial disposition election for disposed property.

Late rollover relief just got easier

It’s possible to withdraw funds from an IRA or qualified retirement plan free of taxes and penalties, so long as you roll the funds over into another IRA or plan within 60 days. But what if you need more time? In the past, the IRS has granted extensions on a case-by-case basis to taxpayers who missed the deadline with good reason.

Now, under a new Revenue Procedure, you may obtain an extension by self-certifying (via letter to the IRA custodian or plan administrator) that you’re eligible for a waiver of the deadline. To qualify, you must have missed the deadline because of one or more of the reasons listed in the Rev. Proc. They include financial institution errors, misplaced checks, deposits into an account mistakenly believed to be an eligible retirement plan, and severe damage to your principal residence. A death or serious illness in your family and postal errors are among the other reasons.

In addition, you must complete the rollover as soon as practicable after the reason for the delay is no longer an impediment. (Within 30 days is deemed to be sufficient.)

Watch out for charity scams

Be alert for fake charities attempting to take advantage of your generosity, particularly after a major natural disaster or mass shooting. To protect yourself, the IRS recommends that you:

  • Donate to recognized charities only,
  • Be wary of charities with names that are similar to those of well-known organizations (when in doubt, use the IRS’s Exempt Organizations Select Check),
  • Not give out personal financial information or Social Security numbers, and
  • Donate by check or credit card; never send cash.

Also, look out for bogus websites or emails that mimic legitimate sites, use similar names, or claim to be affiliated with legitimate charities.

Take advantage of partial asset dispositions

Often, when a business invests in improvements to a building or other property, the project also involves demolition or removal of a portion of the property. Under those circumstances, the tangible property regulations — popularly known as the “repair regulations” — allow you to make a “partial disposition election,” which entitles you to take a loss on the disposed portion of the property and to deduct, rather than capitalize, the removal costs.

To enjoy these tax benefits, however, you must act quickly. To make a partial disposition election, you must claim the loss on the business’s tax return for the year in which the disposition takes place, even if the project isn’t completed until a later year. In certain limited circumstances, late elections are allowed.

© 2017

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