Who claims kids? Tax considerations for divorcing parents

By Andrew Zashin*

Among the many issues that divorcing couples with children must face is one often worth thousands of dollars: who will claim the kids on their tax returns? As tax season begins on Jan. 23, let’s look at some of the child-related tax benefits that should be considered during a divorce.

Child Tax Credit

According to the IRS, the Child Tax Credit helps families with qualifying children get a tax break. For the 2022 tax year, individual filers who earned less than $200,000 can receive a $2,000 credit toward their outstanding federal tax liability per qualifying child age 16 or younger. For individuals who earned more than $200,000, the Child Tax Credit amount is reduced by $50 for each additional $1,000 of income until it is eliminated. Those whose Child Tax Credit amount exceeds their 2022 tax liability may be eligible for a tax refund of up to $1,500.

In order to qualify for the Child Tax Credit, a parent must have a qualifying child live with them for at least half of the year and must cover at least 50% of that child’s expenses. A parent can allow the other parent to claim the Child Tax Credit for a particular child, however, by executing IRS Form 8332.

Earned Income Tax Credit

The Earned Income Tax Credit is a fully refundable tax credit for those with low-to-moderate earned income. Similar to the Child Tax Credit, the Earned Income Tax Credit is a credit, not a deduction, which means that it directly reduces the amount that you owe to the federal government. The amount of Earned Income Tax Credit a parent is eligible for depends on income, filing status and the number of qualifying children you have. No Earned Income Tax Credit is available for a single filer earning more than $53,057 per year. Unlike the Child Tax Credit, the Earned Income Tax Credit can only be claimed by the parent who the qualifying child lived with for more than half of the year.

Child, Dependent Care Tax Credit

For working parents with children who are disabled or under the age of 13, the Child and Dependent Care Tax Credit is available to offset the cost of providing care for these children. The amount of the credit is a percentage of the amount of work-related expenses paid to a care provider based on the parent’s adjusted gross income. The total expenses that a parent can use to calculate the credit may not exceed $3,000 for one qualifying child or $6,000 for two or more qualifying children. Similar to the Earned Income Tax Credit , the Child and Dependent Care Tax Credit can only be claimed by the parent who the qualifying child lived with for more than half of the year.

Head of Household Status

An unmarried parent who paid the majority of their home upkeep costs in 2022 and who had a qualifying child live with them for more than half of the year may be able to file under head of household status. There are two main advantages to filing as head of household: a higher standard deduction, $19,400 versus the $12,950 available to single filers, and the potential to be taxed at a lower tax rate. A parent may still be eligible to file as head of household even if the other parent can claim the qualifying child for purposes of the Child Tax Credit.

These are just a few of the child-related tax issues that parents should consider when divorcing. I encourage you to consult with your accountant or a tax professional to see which of these, and other, child-related tax benefits you may be able to utilize.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:04-05:00January 19th, 2023|Child-Related Tax Benefits, Divorce, Tax Breaks|

Cleveland’s redesigned residential tax abatement program solution to affordable housing crisis?

By Andrew Zashin*

In 2017, Ordinance 244-2017 established in the city of Cleveland a “one size fits all” residential tax abatement policy: a blanket 15 years 100% abatement of any increase in real estate property tax that results from eligible improvements on qualifying projects (whether a new construction or the remodeling of existing homes). All work had to be completed under a permit issued by the city and needed to meet Green Building Standards.

While the tax abatement program has been a clear success in various parts of the city like downtown, the near west side (Ohio City, Tremont, Detroit-Shoreway, Edgewater, etc.), or University Circle – some neighborhoods have not drawn as much interest and remain lagging behind.

With the 2017 tax abatement program expiring on June 4, and the crippling affordable housing crisis, Cleveland Mayor Justin Bibb and his administration introduced a revamped tax abatement legislation on May 9. After some alterations, Cleveland City Council unanimously adopted the new legislation on May 25 – days ahead of the expiring program.

The redesigned tax abatement program focuses on incentivizing equitable developments uniformly across the city by dividing the city blocks into three tiers: market rate, middle market and opportunity neighborhoods. A map of the neighborhood designations is available on the city of Cleveland website at bit.ly/3Apj6YM.

The idea behind the three-tiered design is to grant greater tax relief to neighborhoods with the weakest housing market than neighborhoods with more demand.

For example, constructions of new homes in a market-rate neighborhood will be eligible for an 85% abatement on the first $350,000 of a property’s value. In middle markets, the abatement rises to 100% on the first $400,000. And finally, in opportunity neighborhoods, the owners may claim 100% on the first $450,000.

Constructions of multi-family projects of four units or more are also subject to the three-tiered approach with an 85% abatement in market-rate neighborhoods, 90% abatement in middle-markets, and 100% in opportunity. But with multi-family projects comes an additional requirement: that the owner enters into a Community Benefits Agreement with the City.

The Community Benefits Agreement requires that owners of multi-family projects set aside a percentage of units that someone making the metropolitan area’s median income of $56,000 could afford (just above $1,000 for a one bedroom). The set aside is 25% for a multi-family project in avmarket-rate neighborhood, 15% in a middle-market neighborhood, and 5% in an opportunity neighborhood. Developers that do not meet the set-aside requirement can also pay $20,000 per unit into a housing trust fund.

The main alteration that the council undertook from Bibb’s proposed plan is with regards to renovations. Renovations will not be subject to the three-tiered approach. Rather, the blanket 100% abatement for 15 years remains – regardless of geography. For a single-family home, the 100% abatement applies to the first $450,000 of the property’s value or if all units are affordable at 80% of the area’s median income. For a multi-family home, the 100% abatement applies if the remodeling costs are greater than $15,000 per unit or $500,000 per structure and if the owner enters into a Community Benefits Agreement with the city.

The hope is that developers will prefer undertaking renovations rather than new build projects – creating significantly less waste than the latter.

For all projects, the requirement that all developments (whether renovations or new build) adhere to the green building standards remains.

The new abatement program will take effect on Jan. 1, 2024. For more information about the new abatement program, check out the council program.

Whether the new abatement program is or isn’t successful in creating significantly more affordable housing, one thing is certain – Cleveland is building more than ever and changing at a rapid pace.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:05-05:00August 19th, 2022|Real Estate, Tax Breaks|

Potential tax relief for commercial property owners negatively affected by COVID-19

By Andrew Zashin*

Unbeknownst to many Ohioans, on Aug. 3, Gov. Mike DeWine signed into law Senate Bill 57, which can assist real property taxpayers who believe the value of their property has declined as a result of the COVID-19 pandemic.

The law specifically allows eligible taxpayers to file a special COVID-19 complaint with their county board of revision requesting that a property’s tax valuation for tax year 2020 be determined as of Oct. 1, 2020, instead of the Jan. 1, 2020. Prior to the passage of this recent legislation, a real property taxpayer was only permitted to file one complaint in each three-year valuation period if they disagreed with their assessed tax value. However, the new law allows a real property taxpayer to submit a COVID-19 complaint, even if they have already filed a standard challenge to their property’s value.

In order for a real property taxpayer to qualify for this special COVID-19 relief, the taxpayer must demonstrate that the real property’s value has been reduced due to circumstances related to the COVID-19 pandemic or a COVID-19-related order issued by the governor or a state agency, the special complaint must be filed on or before Sept. 2, 2021 and the special complaint must state with particularity how the COVID-19-related circumstances caused the reduced real property value.

After the complaint is submitted, the taxpayer will be scheduled for Zoom hearing at a later date. If a COVID-19 complaint is successful, and the board of revision shall adjust the tax value of the property which will then alter the taxes payable in 2021. For those taxpayers who bring a successful complaint and have already paid their 2021 taxes, the local county auditor should issue a refund to the taxpayer in the amount the taxpayer overpaid.

While both commercial and residential real property taxpayers are eligible to file a special complaint, because home values have generally remained strong through the pandemic, it may be difficult for a residential property owner to show that their property’s value should be reduced due to the pandemic. As a result, the new complaint program is more likely to benefit owners of commercial properties instead of residential owners since many commercial property owners experienced income losses as a result of the pandemic.

In addition to the tax relief described above, the same law authorized a property tax exemption for housing primarily used by individuals diagnosed with mental illness or substance use disorder and their families. To qualify, property must use the property to provide housing, lease the property to individuals with mental illness or substance use disorder and make supportive services available to such individuals, or lease the property to a charitable institution.

It is important that any taxpayer and/or property owner wishing to file a COVID-19 special com-plaint carefully review the specifications and requirements of the new law prior to filing since a complaint can be summarily dismissed if a complainant fails to provide all the requested documentation and information with their initial complaint. In addition, taxpayers with properties negatively affected by the COVID-19 pandemic or state COVID-19 orders should move quickly to consult with appraisers and legal counsel to determine whether a special tax year 2020 complaint is in their best interests as special 2020 complaints must be filed between July 26, 2021, and Sept. 2, 2021.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:07-05:00August 20th, 2021|COVID-19, Pandemic, Real Estate, Tax Breaks|

Donor-advised funds provide tax win-win

By Andrew Zashin*

Hundreds of billions of dollars have accumulated in donor-advised funds since this vehicle was created all the way back in the 1930s. In fact, an estimated $110 billion is sitting in these funds right now. All, or at least virtually all, of the biggest investment firms in the country now offer this type of philanthropic product to investors, and these funds have proven to be quite lucrative to firms given the volume of cash flowing into them.

What is a donor advised fund?

It is an alternative method of giving that provides tax benefits beyond simple direct giving, at far less cost and administration headache than the creation of a foundation.

While a small subset of donors may find that the creation of a foundation, or even a specific charitable organization, best suits their philanthropic goals, these things require a good amount of administrative oversight and cost. They are simply out of reach – or make little sense – for most donors.

Direct giving – that is, making the donation directly to the charitable organization – may make sense in the majority of cases. After all, it is relatively simple to write a check to a specified organization. Then the donor can simply keep track of donations and then itemize these donations as deductions at the end of the tax year.

But if you are going to have an unusually high-adjusted gross income in a specific tax year – maybe because you exercised some stock options or got a big cash payout –you might consider contributing to a donor advised fund in order to increase your tax deduction and offset the higher tax burden for that year. Or, you might opt to donate appreciated securities or other assets, at fair market value rather than the original cost basis, avoiding capital gains.

Once the money is invested in a donor advised fund, it grows tax-free and then is paid out tax-free to charitable causes. It sounds like a win-win. The donor gets additional tax benefits with minimal administrative headaches, and the charitable organizations get more money because the tax-free growth means there is simply more to give.

The reverse side of the coin is that you are giving up control of the money by placing it in a donor-advised fund. As the name implies, the “donor” is merely an “advisor” as to how and when funds should be allocated. Although, as a practical matter, account managers are unlikely to attract new dollars and investors by entirely disregarding the “advice” given by account holders.

Interestingly, this type of fund has recently come under some fire because of the suggestion that wealthy would-be donors are taking advantage of the tax benefits but then never actually directing funds to be paid out to charitable organizations. The assertion is that billions of dollars are simply sitting there, hopefully growing, but doing nothing to benefit any actual cause.

Hard data simply to support or refute this simply does not exist. However, earlier this year, the California legislature introduced a bill that is intended to provide more oversight into these accounts in order to determine if the “spirit” of these accounts is being routinely violated. It is unclear at this point if such legislation will pass, what new oversight might show, and if any strengthened oversight requirements will be ultimately adopted by other states or at the federal level.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:10-05:00February 21st, 2020|Charitable Donations, Tax Breaks, Tax Planning|

Hot topics in the student loan crisis explained

By Andrew Zashin*

Although some object to labeling it a “crisis,” there is at least widespread consensus that, whatever we call it, our higher education system could be improved. Student loan debt in the United States tops $1.6 trillion. And as many as one in 10 of those 44 million borrowers are defaulting on their debt.

Higher education costs and student loan debt are hot topics, and every 2020 presidential candidate has some plan to address the rising costs of secondary education, the debt load and defaults on that debt affecting many students today. From one side, there have been proposals for free college and widespread forgiveness of federal debt. From the other side, there have been proposals for different forms of tax relief related to loans, different repayment programs and some discussion of the current system of federal grants and loans. Here are some of the hottest issues today.

  • Student loan forgiveness: many progressive Democrats are pressing for student loan forgiveness. Sen. Elizabeth Warren, D-Mass., for example, has suggested canceling $50,000 in debt for households with income of up to $100,000. Households of up to $250,000 would be eligible for some cancellation on a graduated scale. Ostensibly, there would be a mechanism to seek cancellation of privately funded debt as well, and the forgiven debts would not be taxable as income. Others vary in their opinions as to how this would be structured, but there is definitely a progressive push toward widespread cancellation of existing debt.
  • School costs: another sweeping change suggested by progressives is, of course, the idea of “free college.” Sen. Bernie Sanders, I-Vt., suggests eliminating tuition and fees at all public colleges, universities, community colleges, tribal schools, trade schools and apprenticeship programs. He would then look to divert more funding to already existing programs such as work-study and Pell grants to help out families living closest to the poverty level close the gap on other expenses of schooling, like housing and food. While campaigning in 2016, President Donald Trump was in favor of pushing the schools to do more to help lower income students attend, specifically by using endowment dollars for this purpose, rather than relying on federal funds.
  • Income-based repayment plans: Democratic presidential candidate Andrew Yang proposes loan repayment plans that are income based, up to 10% of income, paid for a period of 10 years, after which time the remaining debt would be forgiven. Trump is pressing for streamlining currently available repayment plans into one similar plan, with a repayment cap of 12.5% of income, paid for a period of 15 years.
  • Bankruptcy: Common wisdom says student loans are not dischargeable in bankruptcy at all. This is not quite true, but the burden is so high as to make it nearly impossible. Generally, an effort must have been made to pay back the student loans, and a significant financial hardship must be shown, both in that a basic standard of living could not be sustained if the loans are repaid, and that the hardship would last for the majority of the payback period. There has been some talk around better defining what an “undue hardship” is and, in general, making it easier to discharge student loans in bankruptcy.
  • Tax breaks: The recent Tax Cuts and Jobs Act did away with taxation on student loan discharge for death and disability, which decreases the already heavy burden faced by those who have experienced the death or disability of a breadwinner. But the future of the student loan interest deduction is unclear. Even though it did remain in the final version of the Tax Cuts and Jobs Act, Trump originally proposed eliminating it. This deduction provides up to $2,500 in deduction of interest paid on a student loan. There are a number of very different thoughts on how to tackle the problems of higher education costs and rising student loan debt. This is sure to be a hot topic throughout the 2020 election and beyond.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:10-05:00November 4th, 2019|Debt, Student Loans, Tax Breaks|

Tax reforms may pose significant hit to charitable giving

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Every level of government, from the smallest municipality to the federal government, must tackle tax issues. Politicians, pundits and, of course, prospective tax payers will each weigh in, offering separate opinions as to how best to generate the funds the government needs to operate without breaking the back of the average citizen or losing his vote.

President Donald Trump recently released a skeleton outline of his tax plan. The plan proposes sweeping overhauls that, among other things, aims to significantly increase the standard deduction to $12,000 for a single filer and to $24,000 for a jointly-filing married couple. And, for many middle-class Americans, higher standard deductions do away with the complicated process of itemizing deductions for things like qualifying medical expenses, state and local taxes paid, and charitable contributions.

A simplified tax filing process is certainly something taxpayers could get behind. But charitable organizations have some concern as to what impact this plan may have on their bottom lines. Certainly, people donate for benevolent reasons; they do it because they genuinely want to see a cause succeed and because it feels good to do good in the world.

But charitable organizations are well aware that people also give because they derive some direct benefit from it. At certain levels of giving, name recognition may be involved. Perhaps the giver will see their name in a printed program or on an inscribed plaque or brick, or even on the entrance to a hospital wing or theater. Maybe they benefit by having a cleaner home after donating unwanted clothing or household goods.

Or, maybe they get a tax write-off. And, it is the last reason that is causing some concern; if the average taxpayer will no longer get the same tax benefit for his charitable contributions, will he still give at the same level? Nonprofit leaders certainly don’t think so, and experts are estimating that overall giving could decrease by as much as $13 billion to $26 billion per year.

Support is increasing for the concept of a universal charitable deduction, and one congressperson, U.S. Rep. Mark Walker, R-N.C., has introduced the Universal Charitable Giving Act, which proposes to offer an incentive for lower and middle income families to keep or start giving, by allowing them to deduct their charitable donations in an amount of up to one-third of the value of the standard deduction, without itemizing.

Clearly, it is far too soon to know if any of these tax changes may come to fruition or in what form. But, it is apparent that the proposed Trump reforms would mean that as many as 95 percent of taxpayers would derive no value from itemizing deductions and, therefore, no additional tax benefit for charitable giving.

The National Council of Nonprofits responded with a statement calling for Congress and charitable nonprofits to “quickly identify relevant data and come to a consensus on how best to improve the universal charitable deduction so that all American taxpayers, not just 5 percent, benefit from the tax incentive for donations designed to make a difference in local communities across the country.”

2023-11-10T13:38:12-05:00October 18th, 2017|Charitable Donations, Non-Profit, Tax Breaks, Tax Planning|

Tax credits, deductions await congressional approval

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

The calendar year is swiftly coming to a close. Along with the lake effect snow and icy weather comes the annual last-minute push for Congress to renew expired tax breaks before the year ends and tax season gets into full swing. And, while there is always a push to make such provisions more permanent, if recent history is any indication, Congress will likely, at most, renew them only through 2014 or 2015.

A group of more than 50 unrelated “tax extenders” that expired at the beginning of 2014 are the subject of a bill stalled in the United States Senate.

Here is a sampling of some of the more common and popular credits you may miss out on if an extension isn’t pushed through:

Mortgage debt forgiveness – mortgage debt written off or forgiven, such as through a short sale, foreclosure, or loan modification, historically was treated as taxable income. The Mortgage Forgiveness Debt Relief Act of 2007 changed that. The act’s provisions have been extended in prior years. However, some experts believe that, since housing prices are rebounding, this provision might not be renewed for 2014 and beyond.

Energy efficiency credit – this credit has historically been provided to homeowners who have made home improvements to help their home’s energy efficiency rating, such as through the addition of insulation, energy-efficient exterior windows and energy-efficient heating and cooling systems. Credits have also historically been given for the purchase of electric vehicles.

Educator expense deduction – in prior years teachers, principals and counselors of grades kindergarten through 12 could take a deduction of up to $250 for certain classroom expenses paid from their own pockets. This provision has been regularly renewed ever since its initial expiration date in 2005 and, while $250 may not sound like much, it has been used by educators to save millions of dollars over its lifespan.

Above the line education deduction – through 2013, up to $4,000 in expenses related to higher education could be taken as an above the line deduction, subject to limitations based on filing status and adjusted gross income.

IRA charitable rollover provision – through 2013, persons older than 70½ could make tax-free IRA distributions directly to charitable organizations in an amount of up to $100,000.

First year 50 percent bonus depreciation – in an effort to jump-start a flailing economy, for the past few years small business owners have been able to depreciate 50 percent of the cost of certain assets for that asset’s first year in service. This provision is considered likely to be extended into the 2014 tax year.

R&D tax credit – this is a general business tax credit for companies incurring research and development costs. It has been extended at least 14 times since its inception in the early 1980s, and is widely expected to be extended again.

The New Markets tax credit – established as part of the Community Renewal Tax Relief Act of 2000, this was intended to encourage revitalization efforts in impoverished and low-income neighborhoods, and it provides tax credit incentives to investors in certified Community Development Entities that invest in such neighborhoods.

Congress will hopefully consider all of these tax breaks and many, many others in the next few weeks. John Koskinen, IRS commissioner, has already warned Congress that if uncertainly about these issues continues into December the start of the 2015 tax season will likely be delayed – and this delay will almost certainly mean delayed refunds.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00November 20th, 2014|Tax Breaks, Tax Planning|

Still time to capitalize on expiring tax breaks

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Even though only a few weeks remain on the calendar, it’s not too late for a little planning to make the most of some tax breaks scheduled to expire at the end of 2013. Of course, Congress may extend some or all of these (assuming the government remains open). But, according to CCH, a Wolters Kluwer subsidiary and provider of tax, accounting and audit information, software and services, that’s not at all clear, and Congress is most likely to be very budget-conscious when considering tax law changes.

Given the uncertainty, if you were already planning to, say, make your home more energy-efficient, buy an electric car or look for some debt relief through a short sale, it makes good sense (and cents) to do it sooner than later so you don’t miss out on benefits.

Here is a list of some expiring tax provisions to think about before your ring in the new year.

• Teachers who purchase any or all of their own supplies should consider stocking up now. Primary and secondary education professionals can get an above-the-line deduction of up to $250 for unreimbursed expenses paid during the year.

• Cancellation of mortgage debt from, say, a short sale or a foreclosure of a primary residence can be excluded from income. That is, you won’t have to pay federal income tax on this “free money.” And the limit on this income exclusion is a staggering $2 million.

• Energy-efficient remodeling, including better insulation, new doors and windows, or an updated HVAC system can qualify for a tax break of up to $500.

• Purchase of two- and three-wheeled electric motor vehicles will qualify you for a deduction of 10 percent of the purchase price up to $2,500. The credit for automobiles and light trucks can reach a whopping $7,500. While this credit does not, per se, expire at the end of the year, it does begin to phase out for specific manufacturers as sales of qualifying vehicles for use in the United States reach 200,000. In this case, being an early adopter of new technology pays – literally.

• If you typically deduct state and local sales tax in lieu of state/local income tax, consider making big purchases now. The ability to select this deduction is slated to expire this year. Note, though, that CCH considers this tax code provision one of the most likely candidates for extension.

• Charitable individuals age 70½ or older can make annual distributions of up to $100,000, tax-free, as an alternative to taking the itemized deduction on a charitable gift.

• Finally, environmentally minded individuals can maximize their donation opportunities through the enhanced tax benefits available for contributing real property for conservation purposes.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00November 15th, 2013|Charitable Donations, Tax Breaks, Tax Planning|
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