You Make the Call
June 12, 2025
Question: In 2024, Sunhi made all of her daughter Angelica’s student loan payments, including $3,500 in interest, through a check sent directly to the loan service provider. The loan is solely in Angelica’s name, and she is responsible for repaying it. Sunhi has no legal obligation to make the payments. Angelica’s modified adjusted gross income (MAGI) exceeds the threshold for claiming the student loan interest deduction. Sunhi wants to know if she could report the student loan interest deduction on her own 2024 tax return since her MAGI is below the threshold amounts.
Answer: No. Sunhi is not eligible to deduct the student loan interest on her return. Under §221, taxpayers may deduct up to $2,500 of qualified student loan interest paid during the year. However, one key requirement for taking the deduction is that the taxpayer must be
legally obligated to pay the loan. In this case, the loan is in Angelica’s name, and Sunhi is not legally responsible for the debt, rendering her ineligible for the student loan interest deduction. In this scenario, Angelica is treated as receiving the payment from Sunhi and, in turn, paying the interest [Reg. §1.221-1(b)(4)].
June 5, 2025
Question: On Jan. 1, Edna and Stacy each contributed $100 in cash to a new limited liability company (LLC) taxed as a partnership, Counting Cowgirls. Each partner has a 50% interest in the LLC. The LLC immediately obtained an $800 loan to purchase a laser printer, qualifying for $320 of bonus depreciation (40% of $800). This creates a business loss of $320 for the year. Can Edna and Stacy deduct this loss against their outside basis, or is the loss suspended?
Answer: Yes, Edna and Stacy can each deduct their share of the $320 loss. Deductibility hinges on outside basis, which is sufficient due to the liability allocation.
Each partner contributed $100. The $800 partnership loan increased each partner’s outside basis by their $400 share of liabilities, bringing their outside basis to $500 each ($100 + $400). Outside basis includes a partner’s share of liabilities and cannot go negative. Losses are only deductible to the extent of a partner’s outside basis.
The $320 bonus depreciation is allocated equally, resulting in a $160 loss per partner. Outside basis, remains positive at $340 ($500 - $160), so the entire loss is currently deductible.
May 29, 2025
Question: Sarah is a U.S. citizen who moved to London for work in 2024. On May 15, 2025, as she was skimming through a financial blog, it suddenly hit her that she forgot to file her 2024 U.S. tax return. She realized that the regular filing deadline, April 15, had passed and still hadn't filed her 2024 taxes. Panicking, Sarah wonders if she is in trouble for not filing her 2024 taxes on time. Is she required to file her 2024 taxes by April 15, 2025?
Answer: No, she is not in trouble for failing to file her 2024 tax return by April 15, 2025, because U.S. citizens who live abroad have a different filing deadline. According to IRC §6081 and Treasury Regulation §1.6081-5, U.S. citizens and resident aliens automatically qualify for a two-month extension to file their tax returns and pay federal income tax if, on the regular filing due date of their return, they meet one of the following conditions:
- They live outside the United States and Puerto Rico, and their primary place of business or post of duty is outside the United States and Puerto Rico.
- They serve in the military or naval service and are on duty outside the United States and Puerto Rico.
Since Sarah was living and working in London on April 15, 2025, she satisfies the first condition and qualifies for this automatic filing extension. This extension moves her filing deadline to June 16, 2025. The deadline is extended by one day because June 15 is a Sunday. She must include a statement explaining which of the two situations qualified her for the extension.
It is important to note that this extension applies only to filing, not paying. If she owes tax, interest will begin to accrue on any unpaid balance beginning April 15. Late payment penalties may still apply, unless she can show reasonable cause under IRC §6651.
If Sarah needs additional time beyond the automatic two-month extension, she can file Form 4868,
Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, by June 16, 2025, and must check the box on Line 8 to request an additional four-month extension. This gives her until Oct. 15 to file her return. Interest and penalties are assessed from the original due date of her return (April 15).
May 22, 2025
Question: Jim has a home office. Jim is self-employed and files Schedule C (Form 1040),
Profit or Loss From Business. The home is not a residential rental property. It is 3,100 square feet, and the home office portion is 450 square feet. He installed a new HVAC system in January of 2025, which cost $12,000 and serves the entire home, not just the office. Can a portion of the HVAC cost be deducted as a home office expense?
Answer: Yes, if Jim claims actual expenses for the home office instead of using the simplified method, Jim may deduct a portion of the HVAC system as part of their home office expense deduction.
Because the HVAC system benefits the entire home, it is considered an indirect expense. Indirect expenses are allocable to the home office using the square footage method (or other reasonable method). As provided above, 450 square feet of the home is used for the home office. The percentage of square feet allocated to the home office is 14.52 percent (450/3,100). The amount that can be allocated to the home office portion of the residence is $1,742. ($12,000 x 14.52%)
Generally, an HVAC system is a capital improvement that must be depreciated. Since the home is not used as a rental, but for personal and business purposes, Jim may depreciate this cost over 39 years as nonresidential real property. Thus, Jim may claim a depreciation deduction of $43 in 2025 (year one) ($1,742 x 2.461%) and $45 ($1,742 x 2.564%) in each subsequent year on Form 8829,
Expenses for Business Use of Your Home. Section 179 expense is allowed for an HVAC system (as it is qualified real property), if the business use is more than 50%. The business use is only 14.52%, so it does not qualify for Section 179.
May 15, 2025
Question: Leo owns a small HVAC business and recently hosted a summer kick-off barbecue at his shop for his five technicians; he also participated. No customers or other management staff attended. Leo provided sodas, juice, burgers and brats for the event. Is the cost of the food and beverages fully deductible or subject to the 50% limit?
Answer: The entire cost of the food and beverages is 100% deductible under Reg. §1.274-12(c)(2)(iii). The barbeque qualifies as a social or recreational activity (such as a picnic or informal gathering) primarily provided for the benefit of non-highly compensated employees.
Although Leo attended, his participation does not affect the deduction as long as the event was not primarily for his own benefit and no other highly compensated employees were involved. If these conditions are met, the expenses are fully deductible, not limited to 50%.
To substantiate the deduction, Leo should maintain records detailing:
- The business purpose of the event
- A list of attendees
- Receipts for food and beverage expenses
May 8, 2025
Question: Alex purchased his home in 2024, and his average mortgage balance for the year was $900,000. He paid $32,000 in mortgage interest during the year. He is single and wants to know how much of his mortgage interest is deductible on Schedule A (Form 1040),
Itemized Deductions.
Answer: Under §163(h)(3)(F)(i)(II), for mortgages taken out after December 15, 2017, the deduction for mortgage interest is limited to the interest paid up to $750,000 of home acquisition debt for single filers. Interest attributable to mortgage debt above this limit is not deductible.
Alex’s average mortgage balance of $900,000 exceeds the allowable limit by $150,000 ($900,000 - 750,000). To calculate the deductible portion of his interest, apply the following ratio:
$750,000 / $900,000 = 0.833 (or 83.3%)
0.833 × $32,000 = $26,656
Alex may deduct $26,656 of the mortgage interest he paid in 2024 on Schedule A (Form 1040),
Itemized Deductions. The remaining $5,344 of interest is not deductible.
May 1, 2025
Question: Ron is a sole proprietor. Ron sold his accounting practice in 2025. The sale included office equipment, client files and goodwill self-created by the business based on Ron’s strong customer relationships with his current clients. In the sales agreement, Ron received $150,000 specifically allocated to goodwill. Ron wants to know if this amount qualifies for long-term capital gain treatment on his tax return. Is the gain on the sale of self-created goodwill considered a capital gain?
Answer: Yes. Under
§1245, amortizable §197 intangibles (like purchased goodwill, customer lists, trademarks etc.) are classified as §1245 property. This means they are subject to potential depreciation recapture. Any gain on the sale or disposition of the property may be recharacterized as ordinary income to the extent of prior amortization deductions.
However, self-created goodwill and going concern value typically do not trigger §1245 recapture. Instead, the gain from selling these intangibles is generally treated as capital gain if held for over a year. This treatment is supported by §197(c)(2), which provides the exclusion of self-created intangibles as amortizable §197 intangibles and §197(f)(1), which denies depreciation recapture on goodwill and going concern value that was not acquired in a taxable transaction.
Since Ron self-created the goodwill as part of his trade or business and sold it as part of the overall sale, the gain is reported as a §1221 gain, which is taxed as a long-term capital gain.
Apr. 24, 2025
Question: An unmarried individual, Samantha, filed her income tax return for 2024 on April 11. Samantha's adjusted gross income (AGI) was $5,000 and had no federal income tax liability. She had $180 of income tax withheld during 2024. Samantha estimates that she will have approximately the same amount of AGI for 2025 and no income tax liability. On April 25, Samantha started a new job and believes she was exempt from federal tax withholding. Is she correct?
Answer: Yes, she is correct.
An individual may claim an exemption from federal income tax withholding in the current calendar year under the following conditions:
- Had no federal income tax liability in the preceding calendar year, and
- Anticipate having no federal income tax liability in the current calendar year [§3402(n)]
As long as Samantha meets these two conditions, she is exempt from the withholding and will have no income tax withheld from her paycheck.
To claim exemption from withholding, she should write "Exempt" on Form W-4,
Employee's Withholding Certificate, in the space below Step 4(c). Then, complete Steps 1(a), 1(b), and 5. Do not complete any other steps.
Apr. 17, 2025
Question: Christine is frustrated and upset since the IRS still has not processed her 2022 amended tax return. She has been waiting since June 2023 for her refund or more information. Christine timely filed her 2022 Form 1040,
U.S. Individual Income Tax Return, in April 2023, reflecting a $15,000 tax liability she paid on time. Spotting an error afterward, she amended her return in June 2023 to claim a $4,000 refund. Fast forward to April 2025, and the refund still has not been paid. What is the remedy for Christine to get her refund if the IRS has not denied it?
Answer: If Christine wishes to pursue the refund claim, she must look for jurisdictional remedy in either a U.S. district court or a U.S. Court of Federal Claims.
Under §6532(a)(1), a taxpayer may bring a refund lawsuit in a U.S. district court or the U.S. Court of Federal Claims if either: (1) the IRS has denied the administrative refund claim, or (2) six months have passed since filing the refund claim without any action by the IRS on the claim – whichever occurs first.
Two facts related to this process surprised Christine. First, according to the
Taxpayer Advocate Service's 2025 Purple Book of legislative recommendations (National Taxpayer Advocate 2025 Purple Book):
“The tax code does not require the IRS to process claims for credit or refund or even to respond to taxpayers. The IRS can simply ignore refund claims…While the IRS generally does process claims for credit or refund, claims can and sometimes do spend months or even years in administrative limbo. Other than having to pay interest, no legal or economic incentive exists for the IRS to expeditiously review and process the claims.”
Second, Christine found that the Tax Court handles refund requests but only when the IRS has previously filed a Notice of Deficiency. This leaves Christine a suboptimal choice of the other federal courts, in which it is harder to represent yourself, making them more costly and complex.
Apr. 10, 2025
Question: Philip works in the food industry as a Form W-2,
Wage and Tax Statement, employee. In 2024, he had to buy uniforms and boots; he spent $1,200. Philip told his tax preparer those expenses were out-of-pocket, and his employer did not reimburse him. Philip also told his tax preparer he had seen a video on Facebook where someone said taxpayers could deduct employee expenses on their tax return for 2024 by filing Form 2106,
Employee Business Expenses. Can Philip file Form 2106 and claim a deduction of $1,200?
Answer: No, Philip cannot deduct the expenses using Form 2106. Under the
Tax Cuts and Jobs Act (TCJA), for tax years 2018 through 2025, unreimbursed employee business expenses, including work uniforms and boots, are considered miscellaneous itemized deductions subject to the 2% of AGI floor and are not deductible [§67(g)]. Only specific individuals, such as Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses, may still use Form 2106.
Since Philip does not fall into these categories, he cannot use Form 2106 to deduct the $1,200 expense on his tax return.
Apr. 3, 2025
Question: Upon reviewing Nathan and Tabitha’s joint tax return, you notice the premium tax credit (PTC) they typically qualify for has not been calculated by the software as expected. The couple are budding entrepreneurs and purchased health insurance through a federally facilitated health insurance marketplace. They did not receive any advance premium tax credit (APTC) payments throughout the year. After verifying that the pair otherwise qualifies for the PTC, you rescan the Form 1095-A,
Health Insurance Marketplace Statement, they presented and observe that Form 1095-A, Part III, Column B, is blank. Could this be why the software isn’t generating the PTC, and, if so, how can this be fixed?
Answer: Yes, the second lowest-cost silver plan (SLCSP) is a key component in calculating the PTC, along with income and family size. When APTC is not paid for coverage, the SLCSP premium on Form 1095-A, Part III, Column B, may be incorrect, reported as -0-, or left blank, as is the case with Nathan and Tabitha’s form. The taxpayers are directed not to request a corrected form. Instead, the health coverage tax lookup tool located at
https://www.healthcare.gov/tax-tool/#/ will determine their correct SLCSP premium. This figure must then be manually entered/adjusted on Form 1095-A, Part III, Column B. You easily assist them with this process in the office, and after doing so, the PTC is now properly appearing on their return.
Mar. 27, 2025
Question: Victoria and Francisco have one son, Carlos, who is 18 and started his first year in college last fall. They provide over 50% of his support and will claim him as a dependent on their 2024 income tax return. They have never claimed education credits before and meet all the requirements to claim the American opportunity tax credit (AOTC) (e.g., have not been convicted of any felony drug offense, income requirements, etc.).
[AOTC | Internal Revenue Service] Although Carlos received a partial scholarship to pursue an undergraduate degree in medicine, he still had eligible tuition expenses that his parents paid. Carlos does attend school full-time and does not work. Can Victoria and Francisco claim the AOTC?
Answer: Yes, Victoria and Francisco can claim the AOTC. Carlos is in his first year of college, they have never claimed the AOTC for him before and they meet all the other requirements. The maximum credit is up to $2,500.
Mar. 20, 2025
Question: Jessica will purchase a new electric vehicle (EV) in 2025. She knows the federal clean vehicle tax credit but prefers to apply it directly at the dealership rather than waiting to claim it on her tax return. Can she transfer the credit to the dealer at the point of sale?
Answer: Yes. Under the
Inflation Reduction Act of 2022, effective for vehicles placed in service in 2024 and beyond, eligible taxpayers can transfer the clean vehicle credit to an eligible dealer registered with the IRS [§30D(g)]. This provision allows the credit to function as an immediate price reduction rather than waiting to claim it when Jessica files her tax return.
To qualify, the EV must meet the final assembly, battery component and critical mineral requirements outlined in §30D(d). Additionally, Jessica’s modified adjusted gross income (MAGI) for the current or preceding tax year must not exceed the applicable limit – $300,000 for married filing jointly, $225,000 for head of household, or $150,000 for single filers – or she must repay the amount received for transferring the credit when filing her tax return [§30D(f)(10)].
Any improper use of the credit by ineligible taxpayers may result in a recapture of the credit upon filing.
Mar. 13, 2025
Question: Jim and Sarah are married and filing a joint tax return in 2024. Their modified adjusted gross income (MAGI) was $237,000. The couple finalized the adoption of a child with special needs in 2024 and have qualified adoption expenses (QAEs) of $10,000. Is their adoption credit limited to $10,000 in 2024?
Answer: No, Jim and Sarah can take the maximum adoption credit of $16,810 in 2024 for a child with special needs, regardless of the QAEs they paid. However, other specific criteria must be met to take the adoption credit. Married taxpayers must file a joint tax return. Their MAGI must also be below $252,150 in 2024 to receive the full adoption credit amount. Finally, the adoption must be final in the year the adoption credit is claimed.
The adoption credit is a non-refundable tax credit. Therefore, the amount of credit cannot exceed the taxpayer’s tax liability. Any unused adoption tax credits can be carried forward for up to five years.
The adoption tax credits are reported on Form 8839,
Qualified Adoption Expenses, Part II,
Adoption Credit, which flows to Schedule 3 (Form 1040), Additional Credits and Payments, Line 6c,
Adoption Credit. Attach Form 8839.
Mar. 6, 2025
Question: Fred is a minister who only receives a housing allowance as payment for his services. He heard he could request voluntary federal income tax withholding (FITW) from his pay to help offset the
Self-Employed Contributions Act (SECA) tax he owes. He contacted his church and was told he could not take FITW from the housing allowance he received. Why was he not allowed FITW?
Answer: Fred was not allowed FITW because his housing allowance (sometimes called a parsonage allowance or a rental allowance) is not reported on Form W-2, Box 1.
Per IRS regulations, voluntary withholding agreements established under §3402(p)(3)(A) apply to amounts that must be included in an employee’s gross income under §61. If Fred only receives a housing allowance as income, it is excluded from gross income under §107(2) and does not qualify for voluntary FITW.
Because of these regulations, ministers cannot request voluntary FITW when they receive only a housing allowance. They must have some taxable income, including salary, wages or even an SECA equivalent. Fred would have been qualified if he had received other gross income, like health insurance premiums paid by the church on his behalf or reimbursement under a nonaccountable plan.
Feb. 27, 2025
Question: John is a U.S. citizen who died on Nov. 17, 2024. His will names three beneficiaries to his estate, each of whom is a U.S. citizen. John's final Form 1040,
U.S. Individual Income Tax Return, will report all income attributable to him while he was alive, with the income received after death allocable to the estate. The estate's only income for the year is $450 of taxable income from gross proceeds from the sale of stock and $200 of tax-exempt interest. Is the estate required to file Form 1041,
Income Tax Return for Estates and Trusts, for its initial year?
Answer: Yes. An estate is required to file a tax return if any of the following conditions apply: (1) has gross income of $600 or more during the year; (2) has a beneficiary who is a nonresident alien; or (3) is a trust making a §645 election to be treated as part of the estate if the combined gross income of the trust and estate is $600 or more.
Although John's estate had $450 of taxable income, its total gross income was $650 ($450 + $200), which pushes it over the $600 gross income threshold, requiring it to file Form 1041 for the year.
Feb. 20, 2025
Question: Sandra, a partner in TRX, LLC, received a Schedule K-1 (Form 1065) with $45,000 in Box 19, Code C. The instructions for this current distribution indicate that this is the partnership's adjusted basis of property immediately before it was distributed to Sandra. Besides the adjusted basis, what does her tax preparer need to know to complete the new Form 7217,
Partner's Report of Property Distributed by a Partnership, that should be filed with her Form 1040,
U.S. Individual Income Tax Return?
Answer: Sandra and her preparer also need to know her outside basis in the partnership so it can be compared to the adjusted basis of the property reported on Schedule K-1. The fair market value of the property on the distribution date is also required to complete the form.
Form 7217, as it applies to current distributions, is a new form (2024) that reports the adjusted basis of property distributed from a partnership to a partner. Although a cash distribution in excess of outside basis may result in immediate gain recognition, current distributions of noncash property (such as real estate or equipment) generally do not cause either the partner or the partnership to recognize gain or loss on the distribution.
Instead, the partner's basis in the distributed property cannot be more than the partner's outside basis before the distribution (reduced by any cash distributions). Thus, the partnership's adjusted basis in the property carries over to the partner to the extent of the partner's outside basis so that recognition of gain or loss is deferred.
In other words, a partner's basis in the distributed property is the smaller of:
- The partnership's adjusted basis immediately before the distribution, or
- The adjusted basis of their partnership interest (outside basis) reduced by any cash distributed in the same transaction.
The partner may recognize gain or loss at a later time, such as when they dispose of the property [§732(a)].
Feb. 13, 2025
Question: Katherine is a U.S. citizen living in El Salvador. She purchased a personal residence in that country over 12 years ago and has lived there as her primary residence ever since. Katherine sold her home in May of 2024. The home was originally purchased for $220,000; she made $50,000 in improvements and sold it for $300,000. The sale results in a small gain.
Katherine mentions that she has not yet received Form 1099-S,
Proceeds from Real Estate Transactions, but she will receive one. Would Katherine be able to take advantage of the §121 exclusion and how would that be reported on her tax return since the home was in a foreign country?
Answer: Yes, if all the §121 requirements are met, the exclusion can be used on a foreign residence. Section 121 and Reg. §1.121-1 do not explicitly require the residence to be in the United States.
Therefore, as long as Katherine satisfies the ownership and use tests required under §121, she is eligible to exclude the gain from the sale of her principal residence, regardless of its location in a foreign country.
Katherine will report the sale of her foreign principal residence and the exclusion on Form 8949,
Sale and Other Dispositions of Capital Assets, and Schedule D (Form 1040),
Capital gains and Losses, just as if it was sold in the U.S.
Feb. 6, 2025
Question: Diego is an active-duty military member stationed in Germany since last March. His spouse and children (ages 3 and 6) remained in Florida in the home they own together. This is Diego's first deployment, and his spouse is not sure what filing status to use since Diego has not lived in their home for the last 10 months.
The couple does not want to lose any credits they could be eligible for but are concerned because Box 1 of Diego's Form W-2,
Wage and Tax Statement, only shows $8,000 even though he is employed by the military full time and received other nontaxable pay. The couple's only other source of income comes from the small business Diego's spouse owns, which nets $19,000 annually after expenses. Neither Diego nor his spouse attend school currently, but they do have eligible childcare expenses for both children. They are not separated and do maintain their home equally. Which filing status is more beneficial for Diego and his family?
Answer: Married filing jointly is the correct filing status to ensure that Diego and his spouse can claim all the credits they are eligible for, such as the child and dependent care credit. In this case, even though Diego has been out of the home the last six months of the year, his spouse does not qualify for head of household filing status since they maintained the household together. The married filing separately filing status would not benefit the couple because they would not be able to claim certain credits.
Diego and his spouse would also qualify for the earned income credit (EIC) based on their combined adjusted gross income (AGI) of $27,000. For tax year 2024, $62,688 is the maximum AGI eligible for couples filing jointly to claim EIC with two children. Box 1 of Diego's Form W-2 is smaller than the total pay he received for the year because his taxable income does not include special pay allowances. Those amounts will be listed in Box 12 and can be found on his military leave and earnings statement as well.
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