Monday, November 19, 2012

Georgia vehicle ad valorem tax to end

It may have slipped under your radar this year, but the vehicle ad valorem tax is coming to an end in Georgia.  A bill was passed earlier in 2012 that, once effective in 2013, will combine vehicle sales tax with the ad valorem tax resulting in a new “title tax.”  You only pay this once, at the time of purchase.  And then there will be no yearly birthday tax (ad valorem tax) due.  The title tax will be due on all new and used cars purchased after March 1, 2013.  Purchasers of vehicles in 2012 will have the option to continue to pay the ad valorem tax as everyone has up until this point, or they may opt for the new title tax. 

The title tax will be based off of a percentage of the fair market value of the purchased vehicle, less any trade-in value of another vehicle, which may differ from the purchase price of the vehicle.  For 2013 the tax will be 6.50% of the fair market value less any trade-in value, 6.75% in 2014, and 7.00% from 2015 forward  with a provision to be raised to 9% if deemed necessary to meet revenue projections.  People who move to Georgia will also be required to pay this tax when registering their vehicle in Georgia.  50% of the tax will be due when registering, and the remaining 50% will be due within 12 months.

The longer that an individual maintains ownership and title of a vehicle, the more beneficial this legislative change will likely be to them.  If you purchase a vehicle every few years, this change may be less beneficial to you or it may actually be detrimental.  The greatest savings will likely come to those purchasing new vehicles.  Prior to March 1, 2013, new car purchasers would pay sales tax and yearly ad valorem taxes.  Purchasers after March 1, 2013, will only pay a one-time title tax (similar in percentage to the prior sales tax), and no sales tax or yearly ad valorem taxes.

John Robert Voynich, CPA

Monday, November 12, 2012

Real estate professional election - an IRS hotspot

One of the top areas for IRS exams related to individual returns is Schedule E page 1.  The agents’ eyes glimmer when they see rental losses.   The rules are complicated involving the deductibility of real estate losses, so let me recap the basics:

      1. Typically rental real estate losses are considered passive.  Passive losses can only be deducted to the extent there is passive income; otherwise, they are carried forward to the next year.
      2. If you actively participate in your real estate activities (making significant management decisions, arranging for others to provide repairs services, etc), you can deduct up to $25,000 of passive losses regardless of passive income.
      3. If you qualify as a real estate professional, the losses will not be considered passive and will not be subject to the limitation rules.
      4. To qualify as a real estate professional:
        1. More than half of the time you spend providing services during the year for trade or business activities must be related to your real estate activities
        2. You must materially participate in the real property activities for more than 750 hours during the year (this is determined separately for husband and wife, not aggregated)

Material participation has its own separate tests (7 to be exact), which I will not go into now.  The general idea is that material participation means you are regularly, continuously and substantially involved in the operations of the activity.  

The 750-hour test is tricky, so the most important thing to remember when dealing with rental real estate is to document your time.   Keep a calendar or a daily log.  Document the hours you spend performing services related to your real property trade or business vs. other trade or business time.  Also, make sure you separately document the time you spend on each property. 

While this documentation can be done simply with a spiral bound notebook, today’s technology offers tons of applications for efficient time tracking.    Just from a Google search I found several applications including HoursTracker- Time & Time Tracker (compatible with iPhones and iPads) and Toggl (compatible with Mac, PC, iPhone, IPad, Ipod or Android).  

As always, please discuss any questions you have with your trusted tax professional.  

Jessica Miles, CPA; Supervisor