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Lisa Hahn, CPA

Vikita Shah, EA

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Federal Tax Updates August 2023

Update on Student Loan Debt relief

On June 30, 2023, The Supreme Court struck down President Biden’s federal student loan forgiveness plan in Biden V. Nebraska. In a 6-3 decision, the Court ruled that the Education Secretary did not have authority under the Higher Education Relief Opportunities for Student Act of 2003 (the HEROES Act) to implement a student loan forgiveness program.

Rev. Proc. 2023 -23 – Inflation adjusted amounts for HSAs and HDHPs 2024

On May 16, 2023 the IRS released Revenue Procedure 2023-23 which provides for inflation-adjusted amounts for Health savings accounts (HSAs) and High deductible health plan (HDHPs) for the calendar year 2024.

For 2024, the annual limit on contributions to HSAs are;

For calendar year 2024, a “high deductible health plan” (as defined under § 223(c)(2)(A) is as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage. Annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) cannot exceed $8,050 for self-only coverage or $16,100 for family coverage.

Notice 2023-54 – IRS provides transitional relief and guidance relating to certain Required Minimum Distributions (RMDs)

Required minimum distributions (RMDs) are the minimum amounts you must withdraw from an individual retirement {IRA) each year. Beginning in 2023, the SECURE 2.0 Act raised the age at which RMDs are required to start from 72 to 73. Because this Act was not passed until late December 2022, several IRA owners who turned 72 in 2023 may have taken RMDs which could have been delayed until next year. Notice 2023-54 allows such individuals who received distributions between January 1 and July 31 of this year additional time to rollback the distributions and avoid paying tax. The deadline for the rollback is September 30, 2023.

Reporting income and deductions from vacation home rental.

While renting out a vacation home can be a good source of income, taxpayers need to be mindful of the reporting requirements on their tax returns.

Generally, the rental income from the vacation home must be reported on your income tax return (Schedule E). In addition, the rental expenses, such as maintenance, insurance, taxes, and interest, etc (See publication 527 for additional rental expenses) can be deducted from the rental income. However, these expenses will be limited based on the number of days it was rented versus the number of days for personal use. (Divide the number of days the home was rented out by the total number of days the home was used: rental days plus personal use days).

If you own a partial interest in a rental property, you can report income and deduct expenses according to your ownership percentage.

Rented for less than 15 days

If the vacation home was rented for less than 15 days during the calendar year, its primary function isn’t considered to be a rental.  Therefore, taxpayers are not required to report the rental income but they also can’t deduct the rental expenses from this activity. Expenses related to the home, such as mortgage interest, property taxes, and any qualified casualty loss, can be claimed as itemized deduction on Schedule A (Form 1040).

Rented for more than 15 days

In this case, all the rental income will be reported and the rental expenses deducted. However, all expenses must be allocated between the rental use and the personal use of the vacation home.

Personal use refers to the following;

  1. You or any other person who owns an interest in it, unless you rent it to another owner as their main home under a shared equity financing agreement.
  2. A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as their main home and pays a fair rental price. Family includes only your spouse, siblings, half siblings, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).
  3. Anyone under an arrangement that lets you use some other dwelling unit.
  4. Anyone at less than a fair rental price.

This is a brief overview of reporting income and expenses from a vacation home rental. For more information, refer to  IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

State Tax Updates August 2023

Maryland Estate tax return update – extension

Maryland’s new law on portability now conforms to federal law and allows portability elections 5 years after date of death of the first spouse.

Portability allows taxpayers to reduce their estate tax liability by allowing a surviving spouse to use the deceased spouse’s unused exemption (DSUE). Currently, Maryland’s exemption amount is $5,000,000 per individual and by using the DSUE, couples can shield a total of $10 million from Maryland estate taxes by using this election.

The new law applies retroactively to decedents passing on or after January 1, 2019.

The extended time period is available subject to satisfaction of certain requirements. Please consult with Rubino & Company for guidance applicable to your situation.

Maryland Pass Through Entity (PTE) tax update: Addition modification for Out–of–State Taxes Paid by Pass–Through Entities.

Currently A resident member of an electing PTE may also claim a credit in the amount of the member’s pro rata share of income tax that the PTE pays to another state but State law does not require a corresponding addition modification.

The Maryland Governor approved a Senate Bill 240, to provide for an addition modification to Maryland adjusted gross income by a resident member of PTE, for an amount of the member’s pro rata share of income tax paid by the PTE to another state.

The Bill takes effect July 1, 2023, and applies to taxable years beginning after December 31, 2022.