WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

 

FYI a friend sent me this email – “Mailed tax return February 21.  IRS processed it on April 13.  Refund in my checking account and available on April 18.  56 days total from mailing to receiving refund.  Last year it was 51 days.”  The taxpayer obviously requested direct deposit.  If he wanted a paper check he would still be waiting.  I have not heard of any issues with late refunds (where direct deposit was requested).

* The NATP blog tells us “Tens of millions of taxpayers may be eligible for significant tax refunds (Act by July 10)”.

The post explains –

“This issue arises from recent court decisions, including Kwong v. United States (Court of Federal Claims, Nov. 25, 2025) and Abdo v. Commissioner (U.S. Tax Court, 2024).”

“For COVID-19, a federal disaster declaration was in effect from Jan. 20, 2020, through May 11, 2023.”  

“Based on the court’s reasoning in Kwong, filing and payment deadlines were postponed during that entire period, and as a result, tax returns and payments due anytime within that window were not considered late until after July 10, 2023. By the court’s logic, the IRS should not have assessed penalties for late filing or payment during that 3.5-year period, nor charged interest on those amounts.”

If you were assessed, and paid, a penalty for underpayment of estimated tax or late payment of taxes for 2020 through 2023 returns contact your tax professional to see if you could qualify for a refund.

* The NJ Division of Taxation reports –

“We expect to send the second installment of the 2024 Stay NJ benefit on May 15, 2026. Eligible recipients will receive paper checks in the mail.”

TTFN

IS A PUZZLEMENT!

 

Now is the time that persons of my age need to begin to take Required Minimum Distributions (RMDs) from retirement accounts – IRAs, SEPs, 401(k)s, 403(b)s, etc.  A friend from high school and college, and also a fraternity brother, needed to take an RMD from his 401(k) plan.

A fellow fraternity brother, a former corporate controller who is now a stockbroker, told our friend about a special tax benefit related to “Net Unrealized Appreciation” or NUA -

“I explained to him that since he has appreciated stock in his 401(k) it can be rolled into a taxable brokerage account. The appreciated stock would count towards his RMD while the IRS would only tax his cost basis, saving him thousands of dollars in both federal and state taxes.”

I wrote about this tax benefit here back in November of 2008 in “Here Is A Special Tax Trick” -

“Often employee contributions, and employer matches, to a pre-tax employer pension or savings and investment plan will be invested in the stock of the employer-corporation.

When the employee leaves the company he/she can (a) remain in the plan until retirement age (if allowed by the plan), (b) roll-over the balance in the plan to another tax-deferred account and continue to defer taxable income, or (c) “take the money and run” and be currently taxed on the distribution.

If the employee holds appreciated stock in his former employer’s company in the plan, he/she should not roll-over the stock to an IRA. The thing to do is to withdraw the actual shares of company stock and rollover any remaining cash balance.

The employee will receive a 1099-R reporting a taxable distribution equal to his/her “basis” in the company stock, which is generally the total amount of employee contributions used to purchase the stock. The employee will not be taxed on the full market value of the stock on the date of distribution.

The difference between the basis and the market value is referred to as “net unrealized appreciation” (NUA). This NUA is not taxed until you actually sell the stock. When the stock is sold the NUA, plus any additional gain, will be taxed as a long-term capital gain at the special preferential tax rate – which could actually be “0%” depending on the circumstances.

If you roll-over the company stock to an IRA, when you withdraw money from the rollover IRA it will be fully taxed at ordinary income rates. You would lose the tax benefit of capital gain treatment on the Net Unrealized Appreciation.

You can sell the company stock right away. You do not have to wait to actually hold the stock for a year after the date of the withdrawal – the sale will automatically be considered to be long-term.”

To add to the post – if you keep the money in the 401(k) all RMDs will be taxed as ordinary income at “regular” tax rates.

Did our friend do as his fraternity brother suggested?  No.

“He told me last week that he did his RMD directly from his 401(k).  He asked AI, and AI told him I was wrong, that there was no tax benefit in doing a NAV net assets value rollover of company stock.”

Why our fraternity brother would choose artificial intelligence over the real intelligence of a trained and experienced professional, and 50-year friend, is truly a puzzlement.

The bottom line – don’t rely on “AI” for tax advice!

TTFN

SALE OF YOUR PERSONAL RESIDENCE

If you sell a primary personal residence that you owned and lived in for at least 2 years (24 months) out of the 5 years leading up to the date of the sale (date of Closing) you can exclude up to $250,000 of - $500,000 if filing a joint return and both spouses owned and lived in the home for 2 out of 5 years – from federal, and probably state, income taxes.  The first $250,000 or $500,000 of gain is tax-free.

The two years of residence does not have to be consecutive 12-month calendar years.  If, for example, you live half of the year in the north and half of the year in a summer home four 6-month years would qualify.

To determine your “cost basis” when calculating the gain you begin with the original purchase price, less any credits provided by the seller. 

If you inherited the home your basis is the fair market value (appraised value) of the property on the date of death of the person from you inherited the property.  If a federal or state estate or inheritance return was filed the value of the property listed on that return is the basis.  

You then add –

·         Closing costs paid on the purchase of the home. either as part of the closing or paid separately

·         Capital improvements made to the property over the years

·         Closing costs paid on the sale of the home, either as part of the closing or paid separately

·         Costs of sale you paid directly, such as advertising and marketing expenses

Closing costs that are added to basis include –

·         Abstract or title fees

·         Charges for installing utility services

·         Real estate commissions

·         Legal fees (including fees for the title search and preparing the sales contract and deed)

·         Appraisal and document preparation fees

·         Recording fees

·         Survey fees

·         Transfer or stamp taxes

·         Title insurance

·         Mortgage points that were not deducted/deductible on Schedule A

You can include any closing costs the seller owes that you agree to pay, such as -

·         Real estate taxes owed up through the day before the sale date

·         Back interest owed by the seller

·         The seller‘s real estate commissions and title recording or mortgage fees

·     Charges for improvements or repairs that are the seller’s responsibility (i.e. lead paint removal)

IRS Publication 523 lists examples of improvements that increase the basis of the property -

Additions:

Bedroom, Bathroom, Deck, Garage, Porch, Patio

Lawn & Grounds:

Landscaping, Driveway, Walkway, Fence, Retaining wall, Swimming pool

Systems:

Heating system, Central air conditioning, Furnace, Duct work, Central humidifier, Central vacuum, Air/water filtration systems, Wiring, Security system, Lawn sprinkler system

Exterior:

Storm windows/doors, New roof, New siding, Satellite dish

Insulation:

Attic, Walls, Floors, Pipes, and duct work      

Plumbing:

Septic system, Water heater, Soft water system, Filtration system

Interior:

Built-in appliances, Kitchen modernization, Flooring, Wall-to-wall carpeting, Fireplace

If you included in your basis the cost of an energy-saving improvement and you received a tax credit or subsidy for the improvement, you must subtract the credit or subsidy from your total basis.

Special rules apply to a home acquired via a trade, in a divorce, or as a gift, a home used partly for business or rental, and a home that was foreclosed, repossessed, condemned, or abandoned.  The above referenced IRS Publication 523 discusses these situations in detail.

A special calculation is also required for a surviving spouse who originally purchased the home jointly with his/her spouse.  That is the subject for another post.

Once you have sold your personal residence you should send your tax professional the following items ASAP so he/she can calculate the gain on the sale during the “off-season” and be ready when you file your 2026 return –

·         The Closing Statement for the original purchase of the home

·         The Closing Statement for the sale of the home

·         A list of capital improvements made to the property over the years

·         A list of expenses of sale you paid directly

Any questions?

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

 

It is very, very important that you get your federal and state GDE (the “E” is extension) in the mail TODAY.  Take the envelope(s) to the Post Office and hand it/them to a postal clerk and watch him/her stamp the postmark date on it/them.

The penalty for late payment of tax is ½ of 1% (.005) per month.  The penalty for late filing is 5% (.05) per month.

* The IRS has released its list of the “Dirty Dozen tax scams for 2026: IRS reminds taxpayers to watch out for dangerous threats”.

* The NATP blog explains “What every client {taxpayer} needs to understand about taxpayer responsibility” –

“The IRS holds the taxpayer legally responsible for the accuracy of their income tax return, even if a professional prepared it.”

* And NATP explains “How to receive the $1,000 Trump {Section 530A} Account deposit”.

* As he does at this time each year Russ Fox is providing his Top Ten list of “Bozo Tax Tips”.

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

 

* The National Association of Tax Professionals (NATP) has prepared a “media backgrounder” outlining several common “Tax myths taxpayers are falling for in 2026”.  

* Hey, NJ, senior homeowners (highlights are mine) –

“The Stay NJ program offers property tax benefits to eligible homeowners aged 65 and older. It reimburses applicants for 50% of their property tax bills, up to a maximum of $13,000, with a 2025 benefit cap of $6,500. To qualify {for 2025 payments send in 2026 – rdf}, you must have owned and lived in a home for the full 12 months of 2025 and have an income below $500,000. . . . . Stay NJ benefits are calculated after ANCHOR and Senior Freeze benefits are determined and are issued quarterly.

And - “We will begin issuing First-Quarter payments for the 2024 Stay NJ Program on February 9, 2026. Eligible recipients will receive their paper checks in the mail.”

* Back to the National Association of Tax Professionals, it provides “Trump 530A Accounts explained for tax professionals” – which also provides useful information for taxpayers.   

* The F.I. TAX GUY provides a guide to help in “Understanding Your Form 1099-DIV”

* The IRS explains “New Schedule 1-A and Form 1040 instructions show how taxpayers will claim important deductions”.

Regarding the section of Schedule 1-A on the new “Senior Deduction” – see my post “Is A Puzzlement”.

TTFN

IS A PUZZLEMENT!

 

As a “senior citizen” (age 65 or older) I am entitled to the new $6,000 “Senior Deduction” on my 2025 Form 1040-SR.  Married seniors are entitled to a maximum deduction of $12,000 on a joint return (the deduction is not allowed if you are filing separately).

The deduction is phased out at 6% of the amount MAGI (AGI plus foreign income excluded) exceeds $75,000 for unmarried filers or $150,000 if married filing a joint return.

So, if a single filer has a MAGI of $80,000 his/her deduction is reduced by $300 ($5,000 x 6%).  He/she can deduct $5,700.

Looking at a real-life example, one would think that a married couple, both of whom are seniors, with a MAGI of $322,030 would reduce the allowable deduction by $10,322 ($172,030 x 6%) and be able to claim $1,678 ($12,000 less $10,322).  But that is not the case.

If you follow the form – Schedule 1-A Part V – the couple gets no Senior Deduction.

Line 31 – Enter the amount from Line 3 (MAGI)             322,030

Line 32 – Enter 150,000 if married filing jointly              150,000

Line 33 – Subtract 32 from 31                                      172,030

Line 34 – Multiply line 33 x 6%                                       10,322

Line 35 – Subtract line 34 from $6,000                      0

For some strange reason the phase-out amount is subtracted from $6,000 and not $12,000.  If there had been a positive number on Line 35 it would have been doubled to get the total allowable deduction.  So, this married couple is screwed out of a $1,678 deduction.

I have no idea why the calculation is done this way.  Is this what Congress intended?  But then the members of Congress who voted on this new tax deduction never actually read the bill but - they voted as they were told to by their Party.

Is a puzzlement. 

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’?

 

And so it begins – the 2026 tax filing season (for 2025 returns).  I am glad I am retired!

* Did you hear – “National Taxpayer Advocate delivers Annual Report to Congress; finds taxpayer service was strong in 2025 but foresees challenges for taxpayers who encounter problems in 2026”.

One item of note that could cause issues with processing and reviewing 2025 returns (highlight is mine) –

“The IRS started 2025 with about 102,000 employees and finished with about 74,000, a reduction of 27%. Reductions were made in virtually all IRS functions, including Taxpayer Services. . .”

All thanks to the deplorable and despicable so-called Department of Government Efficiency (DOGE) and convicted felon and indicted traitor Trump.

* NATP tells us, “IRS releases FAQs on Executive Order 14247 payment modernization” and provides a summary.

While refunds requested on 2025 returns will be issued via direct deposit –

“For now, mailed payments to the IRS, including checks and money orders, will still be accepted and processed.”

* From the instructions for the 2025 Form 5695 (highlight is mine) -

“Beginning January 1, 2025, if you are claiming the energy efficient home improvement credit for specified property placed into service in 2025, you must include the four-character alphanumeric unique qualified manufacturer identification number (QMID) for each item.”

This number should be provided by the seller of the item.

* The New Jersey 2025 PAS-1 property tax relief application and instructions are now available at the NJ Division of Taxation website.

* The 2025 PA state income tax forms and instructions are finally available online.

TTFN