If you are planning to sell your home, there are a couple of things you need to do in addition to packing and cleaning. For tax purposes you’ll need to determine whether or not the home you are selling is your main residence. Your main home is usually the one that you live in most of the time.

You should determine whether or not you have a gain on the sale of your home. To determine this, you will need to figure out your adjusted basis. Your adjusted basis is theoriginal purchase price of the residence, purchase expenses, improvements, additions, assessments and more. Consult with your tax professional for help in determining the items that may affect your home’s adjusted basis. Take the final selling price and reduce it by your adjusted basis to calculate your gain or loss from the sale.

If you have a gain from the sale of your main home, you may qualify for an exclusion of income for all or part of the gain. In general, if you have owned and used your home as your main residence for two out of the last five years, you are eligible to exclude $250,000 of gain from income ($500,000 for married taxpayers filing jointly). You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

If you received the first-time homebuyer credit and within 36 months of the date of purchase you no longer use the property as your principal residence, you may be required to repay the credit. Repayment of the credit is due with the income tax return for the year the home ceased to be your principal residence. The repayment amount is determined by the gain associated with the sale; if there is a loss the credit may not be required. Consult with your tax professional to determine if a repayment is required.

Example for married taxpayers filing jointly selling home:

• Sales Price: $2,000,000
• Adjusted Basis*: ($1,000,00)
• Exclusion: ($500,000)
• Taxable Gain: $500,000

  * (Original cost $750,000 plus $250,000 of improvements)

Very truly yours,
Mike Mollet CPA

If you use an automobile for business, you may be able to receive a tax deduction to lower your income tax. Unless your car is used 100 percent for business, some of your expenses aren’t deductible. The IRS is quick to question a vehicle used 100 percent for business. Do you, for example, keep the car at the company headquarters over night?

Deducting auto expenses requires diligent record-keeping. There are two ways to calculate your auto deductions – the standard mileage rate or actual expenses. These methods are available whether you own or lease your vehicle. Taxpayers who wish to use the standard mileage rate in lieu of actual expenses for computing deductible vehicle expenses must elect to do so in the first year. Switching to the standard mileage rate in a later year is not an option.

The actual expense method is as exactly as it sounds. Actual expenses, such as the cost of gas, oil, insurance, repairs, maintenance, tires, washing, licenses and depreciation or lease payments, are eligible. For the standard mileage rate method, instead of tracking the above expenses, you track the business mileage you accrue and use a standard rate. For January 1 through June 30, 2011, the standard rate is 51 cents per mile; for July 1 through December 31, 2011, the rate is 55.5 cents per mile.

You’ll need to keep accurate records of the miles incurred for business purposes, dates of business use, destinations and the business purpose. Also, you’ll need to note the odometer readings at the beginning and end of the year to determine the total miles for the year for all uses. The important aspect is to make sure you maintain accurate records. The IRS may disallow a deduction for mileage if you are unable to substantiate your deduction.

It’s important to note that you cannot deduct commuting mileage (mileage from your home to your regular job). It is necessary to determine your tax home. If you are self-employed and maintain an eligible office in your home, you can deduct the mileage to and from your client’s or customer’s place of business, as well as between jobs. As an employee, you can deduct mileage between jobs or to a temporary assignment. If you do not have a regular place of business, you can only deduct your transportation expenses to a temporary location outside your general area of employment.

Very truly yours,
Mike Mollet CPA

Conservation easements protect our open spaces and natural resources and offer significant savings.

Special rules apply for “qualified conservation contributions” which allow you to retain significant ownership interests in real property while qualifying for a deduction. Essentially, to qualify, you must be willing to restrict the use of your real property for conservation purposes via an easement in perpetuity granted to a qualified organization. Additionally, restrictions must be placed on transfers by the donee. Here’s how the rules work:

The contribution must be of a “qualified real property interest” to a “qualified organization.” exclusively for “conservation purposes.” (All of these terms are discussed below.)

A qualified real property interest includes a perpetual conservation restriction, i.e., you would make a gift of an easement on your property limiting your use of it in perpetuity. The gift would be to a qualified organization, i.e., a charitable organization or governmental unit that has a commitment to protect the gift’s conservation purpose and the resources to enforce the restrictions. Conservation groups generally qualify.

The gift must be exclusively for one of the following conservation purposes:

1. The preservation of land areas for outdoor recreation by, or the education of, the general public. This includes preserving a water area for boating or fishing, or preserving a nature or hiking trail. The recreation or education use must be for the substantial and regular use of the public.
2. The protection of a significant relatively natural habitat of fish, wildlife, plants, or similar ecosystem. Public access may be restricted, e.g., to protect the habitat.
3. The preservation of open space (including farmland and forest land) for the general public’s scenic enjoyment or under a governmental policy. The public must receive a significant benefit.
4. The preservation of an historically important land area or a certified historic structure. Under this rule, an easement on a private residence may qualify.
   Detailed regulations have been issued for each category. If you believe you may have property that could be the subject of a qualified conservation contribution, I would urge you to contact me to conduct a detailed review to make sure the above qualifications can be met.

A significant advantage of making a qualified conservation contribution is that you can continue to use and enjoy the property (as long as the conservation easement restrictions are not violated). Thus, for example, you can donate an easement on scenic farmland next to a national park and continue to farm the property. Or you can donate a conservation easement on an historic structure you are using as a home and continue to reside in the home. Some degree of access may have to be granted to the public, depending on the circumstances, but this can be limited in a manner that permits your continued enjoyment of the property. (In most cases, however, retaining the rights to extract or remove minerals by a surface mining method will disqualify the contribution.)

There will be valuation and basis issues regarding the gift. The donated easement may be valued by comparing it to similar easements that have been valued. Or, it may be determined by comparing the value of the property without the conservation restrictions to its value subject to the restrictions. The difference will generally be the value of the gift. Then, you must adjust your basis in the property by subtracting the portion allocable to the gift. For example, if you make a qualified conservation contribution valued at $100,000 with respect to property the total value of which is $1 million, your basis in the property will be reduced by 10%: reflecting the fact that you have donated 10% of the property to charity. If your basis was $600,000 before the contribution, your basis in the property interests you retain will be $540,000.

Qualified conservation contributions can have estate tax implications as well. Your estate can qualify for a qualified conservation easement exclusion of up 40% of the value of land subject to a qualified conservation easement. (The exclusion cannot exceed $500,000.)

Significant income and estate tax benefits may be available to you if you own property that could be the subject of a qualified conservation contribution. If you are interested in pursuing this matter further, please give me a call.

Very truly yours,
Mike Mollet CPA

If you’re self-employed and work out of an office in your home, and if you satisfy the strict rules that govern those deductions (discussed below), you will be entitled to favorable “home office” deductions—that is, above-the-line business expense deductions for the following:

• The “direct expenses” of the home office—e.g., the costs of painting or repairing the home office, depreciation deductions for furniture and fixtures used in the home office, etc.; and
• The “indirect” expenses of maintaining the home office—e.g., the properly allocable share of utility costs, depreciation, insurance, etc., for your home, as Ill as an allocable share of mortgage interest, real estate taxes, and casualty losses.

In addition, if your home office is your “principal place of business” under the rules discussed below, the costs of traveling between your home office and other work locations in that business are deductible transportation expenses, rather than nondeductible commuting costs. And you may also deduct the cost of computers and related equipment that you use in the home office, without being subject to the “listed property” restrictions that would otherwise apply.

Tests for home office deductions. You may deduct your home office expenses if you meet any of the tests described below: the principal place of business test, the place for meeting patients, clients or customers test, or the separate structure test. You may also deduct the expenses of certain storage space if you qualify under the rules described further below.

Principal place of business. You’re entitled to home office deductions if you use your home office, exclusively and on a regular basis, as your principal place of business. (What “exclusively and on a regular basis” means is not entirely self-evident. I can help you figure out whether your home office satisfies this make-or-break requirement.) Your home office is your principal place of business if it satisfies either a “management or administrative activities” test, or a “relative importance” test. You satisfy the management or administrative activities test if you use your home office for administrative or management activities of your business, and if you meet certain other requirements. You meet the relative importance test if your home office is the most important place where you conduct your business, in comparison with all the other locations where you conduct that business.

Home office used for meeting patients, clients, or customers. You’re entitled to home office deductions if you use your home office, exclusively and on a regular basis, to meet or deal with patients, clients, or customers. The patients, clients or customers must be physically present in the home office.

Separate structures. You’re entitled to home office deductions for a home office, used exclusively and on a regular basis for business, that’s located in a separate unattached structure on the same property as your home—for example, an unattached garage, artist’s studio, workshop, or office building.

Space for storing inventory or product samples. If you’re in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use regularly (but not necessarily exclusively) to store inventory or product samples.

Amount limitations on home office deductions. The amount of your home office deductions is subject to limitations based on the income attributable to your use of the home office, your residence-based deductions that aren’t dependent on use of your home for business (e.g., mortgage interest and real estate taxes), and your business deductions that aren’t attributable to your use of the home office. But any home office expenses that can’t be deducted because of these limitations may be carried over and deducted in later years. I can help you figure out how these limitations affect your home office deductions.

Sales of homes with home offices. If you sell—at a profit—a home that contains, or contained, a home office, the otherwise available $250,000/$500,000 exclusion for gain on the sale of a principal residence won’t apply to the portion of your profit equal to the amount of depreciation you claimed on the home office. In addition, the exclusion won’t apply to the portion of your profit allocable to a home office that’s separate from the dIlling unit. Otherwise, the home office won’t affect your eligibility for the exclusion.

I can help. Proper planning can be the key to nailing down the optimum tax treatment for your office at home expenses. I am prepared to assist you with advice about any of the issues discussed above

Very truly yours,
Mike Mollet CPA

A few weeks ago I was reading an article printed in Patagonia’s Winter 2004 Catalog. The article was written by Yvon Choulnard, the founder and owner of Patagonia and 1% for the Planet, an organization I proudly participate in.

I especially liked Choulnard’s outline of the five steps we can take as individuals to reduce the harm we do to our environment and increase the help we can offer to make a difference. I’ve copied Choulnard’s advice below to share with you. I hope it moves you as much as it did me.

STEP 1: Lead an examined life.
Most of the environmental damage humans cause is a result of ignorance. That ignorance is willful when we avoid confronting our problems, when we refuse to learn because we don’t want to have to act on what we know.

STEP 2: Clean up your act.
Once you learn the environmental costs, try to reduce them. And when you can reduce them, you must. People love to figure out how to do the right thing, once they know what that is.

STEP 3: Do your penance. 
No matter how diligent a corporation, it causes waste and pollution. This can take the form of a 1% “earth tax” donation of your profits.

STEP 4: Support civil democracy.
It’s obvious that governments and corporations hold a lot of power, but so do small groups of people who care passionately about an issue and press their cause. The great social movements of the past 200 years – for democracy itself, for women’s rights, for social equality, for conservation and preservation of the environment – rose up directly from small groups of people who spread the word to others. Nature loves diversity and hates monoculture and centralization. A thousand diverse activist groups, each passionately working on a specific problem, can accomplish more than bloated, cautious NGOs or governments addressing all the big issues at once. Even though I work for tough laws, I don’t trust my government. I support the front-line activists, the river keepers and tree sitters who work to save a single patch of land or stretch of water. These are the people who do the most to hold the corporations at bay and keep the government honest. These are the kinds of groups to whom we give most of our money.

STEP 5: Influence other companies.
If you undertake the other steps, this one is a natural. The company that discovers new ways to be more environmentally responsible has an obligation to spread the word to others – to share the knowledge of what can be done. Again, people like to do the right thing when they know the right thing to do.

Very truly yours,
Mike Mollet CPA