LIVING IN THE PAST

A regular, and sometimes even amusing, occurrence in my world, is the inquiry or suggestion from a client about taking a deduction or doing something from a tax point of view that used to be the case, but no longer is. Let me share with you some of my favorites:

Buying a more expensive house – I’m asked this one all the time. If I sell my house, and then replace it with a more expensive one, doesn’t that mean I avoid having to pay tax on the gain on my first house. The short answer is, that used to be the rule, but something like 40 years ago, they changed the rules. There is no longer a requirement to replace the house (at whatever level) in order to avoid paying the tax on the gain. If the gain is $250,000 or less ($500,000 or less for a couple), there is simply no taxable gain, whether or not you replace the house;

Funeral costs – sorry, other than against the value of the estate, these are simply not (never were) deductible against your income;

Religious schooling – another one of those not now, not ever, deductible. Yes, I know that the payment is made to your Temple or Church – and on the surface that seems pretty good. However, when you get value in exchange, there is no charitable contribution – and religious education is considered getting value in exchange for your money (there are many humorous points that could be made in that respect – but I will stay away from them);

Income averaging – this is my personal favorite. For those of you with really long memories, when you had a year with considerably more income than previously, there was the ability to average that year with the prior 4 years, and thus pay current income taxes on a somewhat reduced number. An interesting (and very complex) situation – one that hasn’t existed for in excess of 40 years. By the way, it never worked in reverse – there was never the option if you had a bad year, to then average it in with the prior several years and get a refund based on the current year’s lower income. The exception was where you had negative income – but that’s a whole ‘nother story.