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| Commercial revitalization deduction |
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The federal government has set certain provisions to designate certain communities as renewal communities. Once the area is designated as a renewal community, the community is eligible for certain tax incentives which include a commercial revitalization deduction under section 14001. As a renewal community which has met certain criteria, federal law allows a deduction of 50% of any qualified revitalization expenses to any qualified revitalization building in the year in which the building is placed in service or a deduction of those expenditures ratably over 120 months that begins with the months that the building is placed in service. Not for California though. If you have such a deduction which is allowed on your federal tax return, you must make an adjustment on your California tax return on Schedule CA of Form 540 or Form 540NR, line 12, line 17, or line 18, column C. California should have such a credit, but it does not. There are many buildings and communities in California in great need of rehabilitation. |
| Small Employer Health Insurance Credit |
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If you qualify as a small business employer, you have an incentive under federal tax law to offer your employees health insurance coverage. For federal tax purposes, a small employer can be eligible for a small business health care tax credit. In order to be eligible, the employer must have fewer than 25 full-time equivalent employees, average annual wages of its employees that are less than $50,000, paid a uniform percentage for all employees that is equal to at least 50% of the premium cost of employee-only insurance coverage. By equivalent employee it means that any employees who are not fulltime count as a fraction of an employee. For example, a half time employee counts as 50% of an employee. Most organizations can be eligible employers, even exempt organizations. The employer must reduce any insurance deductions for the amount of the credit. However, for California purposes you don’t need to reduce your insurance deductions and the entire amount of insurance is deductible. To make the adjustment on your California tax return, enter any insurance deductions not permitted on federal on you California tax return by filling out Schedule CA of Form 540 and Form 540NR, line 12, column B. California adds an additional incentive for small business employers to offer health insurance to their employees by placing less restrictions on health insurance deductibility. |
| Gain on sale of personal residence |
| A long time ago you were allowed to take a federal tax deduction only once in your lifetime on the sale of your principal residence. Since then, the rules have softened. Now you are able to qualify to exclude the gain on your home as many times as you need to exclude the gain as long as you meet the requirements and not just once in your lifetime as was required before. You may qualify to exclude up to $250,000 of the gain of your personal residence from your income. This amount goes up to $500,000 if you are filing a joint tax return. You can qualify for the exclusion if you meet the ownership test and the use test. To meet the ownership and use tests, you must have owned and used your home as you main home for at least two years of five years prior to date of sale. You should be able to exclude the entire amount if you have not excluded any gains on the sale of your personal home in the two year period prior to the sale of home. California conforms to this provision except that California offers an additional perk to the deal. California taxpayers serving in the Peace Corps during the 5 year period ending on the date of the sale may reduce the two year period by the period of service that does not exceed 18 months. You can report any differences in the amounts reported by federal and California by completing California Schedule D of Form 540 or Form 540NR. After you complete schedule D, transfer the amounts to Schedule of Form 540 or Form 540NR, line 13, column B if the gain is less than that reported to federal. If the gain is more than that reported on your federal tax return, then transfer the amount to schedule CA of Form 540 or Form 540NR, line 13, column C. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Federal Tax Refresher Course rights reserved. |
| Revised: 07/09/15 |
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