3.8% Net Investment Income Tax

This is a new tax for 2013 on the lesser of net investment income or the amount that adjusted gross income exceeds $250,000 for joint returns or $200,000 for single returns. For example, a couple filing jointly having net investment income of $100,000 and adjusted gross income of $300,000 would pay a tax of $1,900($300,000-$250,000 x .038) since the excess adjusted gross income of $50,000 is less than the net investment income of $100,000. The tax is computed on new form 8960. Net investment income includes taxable interest, ordinary dividends, royalties, net gains from the sales of stocks, securities and investment real estate, rental income, and passive income reduced by allocable deductions such as investment interest expense, brokerage fees, and rental expenses.

Required Minimum Distributions (RMDs)

When  taxpayers reach age 70 1/2, they are required to withdraw an RMD from their retirement plans except for Roth IRAs. The RMD is calculated by dividing the account balance at the end of the prior calendar year by the distribution period on the uniform lifetime table for the owner's age. For example, the distribution period for age 70 is 27.4. If the balance in the retirement account is $100,000, then the RMD is $3,650 ($100,000/27.4). Usually the broker will remind the taxpayer of the RMD amount and ask when you want to withdraw the amount. There is a 50% penalty on an RMD that is not timely withdrawn. The government is trying to encourage you to spend the money on your own retirement and not leave it to your children.

Section 179 Depreciation

For 2013, the max section 179 depreciation is $139,000. To qualify, the property must be used over 50% in a trade or business and not be purchased from a related party. The property can be used. Most rental property doesn't qualify and vehicles are generally subject to a lower limit of $25,000. Trucks and vans (loaded) over 14,000 pounds are eligible for the full $139,000. Qualifying property consists of equipment, furniture, and computers. Non qualifying property includes buildings and their components, fences, air conditioning units, landscaping, and property acquired by gift, inheritance or trade. The section 179 deduction is also limited by the total taxable income from all of the taxpayer's businesses. If the deduction is limited because of the taxable income limitation, the excess can be carried forward to future years until utilized.

High Deductible Health Insurance

To be eligible for a health savings account, you have to have  high deductible health insurance and the deductible limits change every year. For 2013 and 2014, the annual deductible can't be less than $1,250 for individual coverage and $2,500 for family coverage. The maximum annual deductible can't exceed $6,250 for individuals ($6,350 for 2014) and $12,500 for families ($12,700 for 2014). A high deductible health insurance policy can however have a zero deductible for preventive care. The maximum deductible only applies to the network of participating providers.

Vacation Home Expenses

Your deductible expenses are limited if you both use your home for personal use and rent it out. Expenses are deducted in a certain order. Qualified mortgage interest as a second home and real estate taxes are not limited. They are deducted either on the rental schedule for the rental portion or the personal use portion is deducted on schedule A under itemized deductions. Any operating expenses directly related to the rental activity such as management fees or advertising are deducted on the rental schedule. The rental portion of all other indirect expenses such as maintenance, insurance, and depreciation can then be deducted on the rental schedule per days rented to total days occupied . The personal use portion is nondeductible. If your personal use generally exceeds 14 days, then you cannot create a deductible loss from the property. Unused rental expenses can be carried forward to later years. Any day rented to anyone at less than fair rental price is a personal use day and any day rented to family unless it is their main home is a personal use day. If you spend most of the day working on the property, then that day is not counted as a personal use day. An important point to remember is that just one day of personal use triggers the vacation home limitations on deductions.