November 2023 tax updates
November 10th, 2023
Tax Planning for Second Home
Individuals who currently own or are interested in purchasing a second home should be conscious of the potential tax benefits of renting out the home. The benefits vary based on how often the property is rented and the amount of personal use of the home each year. Second homes fall into one of three categories: Personal Residence; Vacation Home; or Rental Property with Personal Use. Do you know which category your property falls under? Reach out to Siegfried Advisory for advice and tax planning regarding your current or future second home.
Lifetime versus Testamentary Gifts
Taxpayers who have charitable intentions have the option to donate property during their lifetime or make a charitable bequest in their will with the assets of their estate. While both choices are commendable, there are tax implications with this decision. While the annual deduction for charitable contributions is limited to 30% of AGI (depending on the type of property and charity), there is a double tax benefit to donating during the taxpayer’s lifetime. Not only is an income tax deduction received during the year of the contribution, but the donated property and any future income or appreciation on that property is fully excluded from the donor’s gross taxable estate. Testamentary charitable donations are fully deductible for estate tax purposes and can be utilized through avenues such as a charitable remainder trust (CRT) while still retaining an income interest in the property during the donor’s lifetime. Seigfried Advisory can assist in creating a plan for your charitable intentions that can maximize tax benefits at both the individual and estate levels.
Tax Benefits for Autos: Deductions
Congress has recently tightened rules on deductions for costs relating to automobile use and intensified auto recordkeeping requirements. Self-employed taxpayers using their personally owned automobile for business use must keep detailed mileage records for each purpose. If adequate records are not kept, the auto deduction could be lost entirely. Although there are also depreciation deductions for automobiles, these deductions have limits based on the 6,000 lb. weight threshold in additional to limits based on the year of depreciation. Leasing your vehicle can provide significant cash flow benefits if you intend to replace your car every few years, however, the tax benefits can vary in comparison to out-right ownership of your vehicle. Siegfried Advisory provides planning strategies for taxpayers looking to effectively utilize income deductions and minimize cash outlay.
California Space Flight Property Exemption Extended
The state of California has recently extended the property tax exemption for qualified personal property used in space flight until January 1, 2029. Qualified property for this exemption includes tangible raw materials, work in process, or finished goods that has, or upon assembly, space flight capacity. This includes, but is not limited to, an orbital space facility, space vehicles, satellites, or space stations. Fuel used and sold exclusively for space flight property is also included in the definition of the exemption.
Tax Relief for Individuals Impacted by the Situation in Israel
On October 13, 2023, the IRS announced tax relief for individuals and businesses affected by the terrorist attacks in Israel. Notice 2023-71 provides relief to taxpayers who may have been unable to meet filing or payment obligations between the dates of October 7, 2023 and October 7, 2024. Effectively, those impacted by the events in Israel have until October 7, 2024 to pay or file any tax obligations that were originally due during that period. The IRS has clarified those who are eligible for the tax relief:
- Any individual or business whose principal place of business is in Israel, the West Bank, or Gaza (the covered area).
- Any individual, business, trust, or estate whose books, records, or tax preparer is located in the covered area.
- Anyone killed, injured, or taken hostage due to the terrorist attacks.
- Any individual affiliated with a recognized government or philanthropic organization assisting in the covered area.
The IRS is continuing to monitor the situation and may provide additional relief.