The IRS Doesn’t Take Pity on Home Sellers Who Suffered a Loss

The Internal Revenue Code looks kindheartedly on homeowners who sell at a profit. Internal Revenue Code Section 121 allows sellers to avoid taxes on some – and perhaps all – of their gains on sales of principal residences. The exclusion amounts are as much as $500,000 for married couples who file joint returns and $250,000 for those who file singly or who are married but file separately.
Revised rules allow surviving spouses more time to sell and still qualify for the $500,000 joint-filer exclusion. This break is available to a surviving spouse who sells within two years of the death of his or her spouse, provided the couple jointly owned and occupied their home.
Profits above the exclusion caps are subject to federal taxes, plus applicable state and local taxes. State and local taxes can be claimed as itemized deductions on Schedule A of Form 1040. But the alternative minimum tax completely disallows certain itemized deductibles, including state and local levies, whether on income or on year-round residences, second homes, or other kinds of real or personal property.
Sellers are able to claim exclusions only if they satisfy two key requirements. First, they’ve owned and lived in the property as a principal residence for periods that aggregate at least two years out of the five-year period that ends on the sale date. Second, they haven’t excluded gain on another sale of a principal residence within the two years that precede the sale date.
But Section 121 is one of those trains designed to run in only one direction, authorizing a phenomenal break for those with profits and offering no relief for those with losses.
Back in 1997, Congress and President Clinton cut a deal to exclude profits on sales. They flirted with allowing sellers a limited deduction for losses, but dropped the idea. The final version of the 1997 legislation left unchanged the rule that generally bars deductions for losses on sales of things that are considered personal assets, such as principal residences. And contrary to what many owners mistakenly believe, mortgage debts don’t enter into the calculation of gain or loss on a sale.
Note also that the law empowers the IRS to use its own special method to calculate whether a seller actually suffered a loss. It’s nowhere as simple as, say, comparing the $650,000 you received when you sold your home with the $700,000 you paid for it in 1996, thereby arriving at a loss of $50,000. You’ll need a calculator whenever there’s also a tax-deferred gain from a previous home sale before May 7, 1997, when the current rules took effect. Should that be so, you must subtract the deferred gain from your present home's cost to determine its adjusted basis at the time of sale.
Let's say the place that costs $700,000 was actually your fifth home, and four prior sales generated a cumulative profit of $600,000. The meaning of those numbers: You reduce that place’s basis downward to $100,000 – the difference between the $700,000 cost and the $600,000 postponed profit. Consequently, under the IRS method, the $650,000 sale doesn’t cause a loss of $50,000. Rather, it results in a gain of $550,000 – the $650,000 sales price minus the $100,000 adjusted basis. Suppose, instead, that the only dwelling you’ve owned is the one purchased for $700,000 and unloaded for $650,000. The IRS agrees you do have a $50,000 loss, but one that’s nondeductible.
The IRS and the courts are adamant in their refusal to make any allowances for extenuating circumstances. For instance, an IRS ruling barred a deduction for a loss caused by a doctor-recommended move from a two-story to a one-story home to allow a child the maximum use of his wheelchair.
It matters not that a homeowner is out of pocket because a job relocation triggered by a layoff, illness, death, divorce, or the like compelled a sudden sale before a home appreciated sufficiently to offset brokerage commissions, legal fees, and other expenses involved in buying and selling. Likewise, a loss isn’t deductible when you move to take a new job or are transferred to a new location.
What if your employer reimburses you for the loss? No offset of an otherwise nondeductible loss against the reimbursement because they’re separate transactions. The loss stays nondeductible. Nor is it permissible to include the reimbursement as part of the selling price and avail yourself of the exclusion. The reimbursement counts as income, says the IRS.

5 Tips to Help Your Website Attract More Clients

Marketing your accounting practice online is essential for client communication and sustained growth, yet many firms are still not using the most basic tool to its full potential: their website.
People expect you to have a useful website, and how well it performs depends on many variables. In addition to attracting more business, your website can serve to retain existing clients, as well as a resource for financial, tax, and business information and overall thought leadership.
Think of your website as a constant window that allows your clients and prospects to explore your business any time. This is your business card, your handshake, your first meeting.
How can you use your site to attract new clients? To answer this question, you must first know how many new prospects turned into clients from initially first visiting your site. Measuring this traffic can be done in a few ways:

• Create a contact page on your website that allows visitors to submit a request for information.
• Add a newsletter sign-up form on your website allowing visitors to register for your newsletter using their email address and contact information.
• Ask new contacts where they first learned about your business. Keeping track of where your new business comes from will help you focus your resources on the most productive prospect stream. Some may say they found you via your website while others come from word-of-mouth, advertising, driving by your business, etc.

Ok, now ask yourself: Are your prospects able to find you online? What search terms would they use to find a new accountant? These search terms will help you improve your website. Try out the logical search terms. Does your firm show up on page one of the results? Page 2? Page 3? etc.
There are also proactive measures you can take to make your website more visible. The search terms (keywords) should be prevalent in your website. These keywords should be used in your page titles and in the text on each page.
For example, if it is common for people to search for your business using “CPA in Hometown USA,” your website home page should include “CPA in Hometown USA.” Make sure your keyword section contains all the logical search terms.
Is there room for improvement to your website? Consider these five essential tips for creating a website that will produce new engagements for your services:

1. Ease of navigation. Your site should be easy to navigate with captivating content. If visitors struggle to navigate your site, they will leave.
2. Quality content. Content on your site should be timely and relevant. Clients and prospects are interested in how you can help serve their tax, accounting, and business needs.
3. Optimize your website for search engines. Your website should be reviewed for search engine optimization (SEO) annually. SEO changes constantly. Let your annual review include a search for the newest SEO techniques.
4. Promote, promote, promote. Talk to your clients and prospects about visiting your website for information. Get their feedback. Add your web address to your business cards, brochures, mailers, etc. (You’d be surprised how many firms don’t do this.) Use social media, print marketing, and email to direct people to your website. Add your website to local business listings and directories.
5. Update your site regularly. Your website will always be in a state of evolution. Schedule regular updates and add meaningful content. Refresh text to make sure it is current. Post articles that would be of interest to your clients and prospects – articles that may move them to call you with questions – such as news about a 529 college savings plan, tax shelters, retirement planning, etc.

Look, your website is a living brochure that must be consistently fed fresh relevant content and regularly monitored for its performance. It serves as the virtual gateway to your business – it makes a first, last, and lasting impression. If you wish to improve your website’s performance, it is up to you to consider these tips and make your site more attractive for prospects, clients, and search engines.