Latest from Kiplinger in Ask-the-editor

Ask the Tax Editor, June 19: Estimated Tax Payments and Withholding

joy.taylor@futurenet.com (Joy Taylor) — Fri, 19 Jun 2026 12:20:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five tax questions on federal estimated tax payments and federal income tax withholding. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Underpayment penalty

Question: How much federal income tax must be withheld to avoid paying a tax penalty to the IRS when I file my Form 1040 each year?

Joy Taylor: You are off the hook from the underpayment penalty if you prepay, through estimated tax payments or withholding, at least 90% of your current year's tax bill or 100% of the tax that you owed for the immediately preceding year (110% if your adjusted gross income for the immediately preceding year exceeded $150,000).

2. Due dates for estimated tax payments

Question: I have to start making estimated tax payments to the IRS this year. What are the due dates for the payments, and how can I make them?

Joy Taylor: Estimated tax payments are for people with income that is not subject to withholding. Taxpayers usually make estimated tax payments to the IRS in four equal installments. The first remittance for 2026 was due April 15. The other dates are June 15, September 15 and January 15, 2027. Victims of federally declared disasters may have more time to pay their estimated taxes.

There are several ways to make estimated tax payments.

If you have an online individual account set up with the IRS, you can log in and pay through the account.
You can pay online with the IRS's Direct Pay or, if you currently have an account, with the Treasury Department's Electronic Federal Tax Payment System.
You can use your phone to pay with the IRS's app.
You can pay by debit or credit card, but know that you will be charged a fee.
Payment by paper check is also accepted for now, but this option will soon disappear.

3. IRS withholding calculator

Question: Do you know whether the IRS has a federal income tax withholding calculator on its website, and is the calculator updated for changes in tax laws?

Joy Taylor: The IRS does have a withholding estimator on its website. It helps you figure out whether you are having the right amount of federal income tax withheld from wages and pensions. The tool asks about various sources of income, provides tips on credits and deductions, and estimates how much withholding to request. And it is usually updated to account for tax law changes.

4. IRS forms to request withholding

Question: Can you tell me the various IRS forms I would use to request more or less income tax withholding from Social Security, wages, IRA distributions, etc.?

Joy Taylor: Employees who want more or less income tax withheld from their wages can submit a new Form W-4 to their employers. People receiving pension or annuity payments can submit Form W-4P. IRA owners use Form W-4R. Social Security recipients have two options. They can fill out Form W-4V and mail it in. Or, if they have an online Social Security account, they can request through their account that more or less tax be withheld from their monthly Social Security payments.

5. Withholding tax from a late-year IRA distribution

Question: I am retired, and most of my income is from IRA required minimum distributions (RMDs), Social Security, and dividends and capital gains from taxable investments. Someone told me that I don't have to make quarterly estimated tax payments. I can instead wait until year-end and request that my IRA custodian withhold a lump sum amount of income tax from my year-end IRA distribution to satisfy my federal income tax liability for the year. Is that true?

Joy Taylor: Pretty much, yes. For federal income tax purposes, tax withheld at any point in the year is treated as if evenly paid throughout the year. Some retirees rely on this rule to have federal income taxes that they expect to owe for a year withheld from a December RMD instead of making quarterly estimated tax payments. Kiplinger regularly advises retirees who are falling short on their tax withholding to have more tax withheld from a year-end IRA payout. Read more in our article on RMD withholding strategies.

State tax rules may differ, and some sponsors don't withhold state income taxes, so be sure to check your specific state law.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, June 12: Tax Basis in Inherited Property

joy.taylor@futurenet.com (Joy Taylor) — Fri, 12 Jun 2026 12:15:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five tax questions on inherited property, including the tax basis upon death. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Inheriting gold and silver

Question: I own highly appreciated gold and silver bars and coins. When I die, will my children get a stepped-up basis in this property?

Joy Taylor: Under the tax law, a decedent’s unrealized gains aren’t hit with federal income tax at death, and heirs step up or step down their basis in the assets they receive, equal to fair market value on death. So yes, your children would take a stepped-up tax basis to fair market value in the gold and silver bars and coins that they inherit from you.

2. Inheriting property with a built-in loss

Question: I own stock that currently has a built-in loss, meaning I paid more for the shares then what they are now currently worth. If I die tomorrow, what tax basis will my heirs take in the stock?

Joy Taylor: Under the tax law, a decedent’s unrealized gains aren’t hit with federal income tax at death, and heirs step up or step down their basis in the assets they receive, equal to fair market value on death. Not many people are aware that when they inherit loss property, they take the lower fair market value at the time of death as their tax basis in the property. That's because most estate planners and tax advisers focus on stepped-up basis for appreciated inherited assets.

If you die tomorrow, your heirs' basis in the stock would be the fair market value of those shares upon your death, which would be a lower tax basis then what you actually paid for the stock. This means that the built-in capital loss in your shares is gone forever. You may want to think about selling the loss property before you die, so that you can take advantage of the capital loss, especially if you have other capital gains that the loss could offset.

3. Tax rules for a jointly-owned home

Question: My spouse and I jointly own our home, which has substantially appreciated. How do the tax basis rules work if one of us dies?

Joy Taylor: With regards to your house, which has appreciated, if you don’t live in a community property state, half of the home will get a step-up in basis upon the death of the first-to-die spouse. The rules are more generous if the house is held as community property. The entire basis is stepped up to fair market value when the first spouse dies.

4. Inheriting rental property

Question: I own rental property that has appreciated since I first bought it. When I die, I plan to leave it to my child. Does he get a step up in basis in the property upon my death? Also, what happens to the depreciation that I had previously deducted on the property?

Joy Taylor: The answer to your first question is yes, your beneficiary would take a stepped-up tax basis in the rental property when you die. That means your child's basis in the inherited property would be its fair market value on the date of your death.

I haven't looked at the depreciation issue before, but it is my impression that your depreciation essentially disappears when you die. Again, your beneficiary takes a stepped-up tax basis in the property. If he decides to keep renting the property, he would depreciate it over 27.5 years, beginning in the year he inherited it and using the stepped-up tax basis.

5. Tax rules for co-owned stock

Question: My mother bought shares in a company in 1987 for $2300. The stock is now worth over $400,000. At some point between 1987 and 1997, she added my name to the shares as joint tenancy. She died last month, and now I own all the shares. What is my cost basis in the shares?

Joy Taylor: I don't know for certain, but I will give you my thoughts. I think when your mom added your name to the shares as joint tenancy, it is treated for tax purposes as if your mom made a gift of half of the stock to you. If it is considered a gift, then I would think your tax basis in the shares equals half of your mom's original cost basis plus half the value of the shares on your mom's date of death.

About Ask the Editor, Tax Edition

Ask the Tax Editor, June 5: Tax Rules for Landlords

joy.taylor@futurenet.com (Joy Taylor) — Fri, 05 Jun 2026 12:05:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five tax questions for landlords who own residential rental property. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Taxes if you sell rental property

Question: I own a condo that I have been renting out to tenants for over 20 years. I plan to sell the condo this year. Will I qualify for the home sale exclusion?

Joy Taylor: Unfortunately, it doesn't sound like you will qualify for this break. Homeowners who own and use their home as their principal residence for at least two out of the five years before selling it get to exclude $250,000 of the gain when they sell. The gain exclusion is $500,000 for married couples who file a joint return.

Since you have owned the condo as rental property and not your primary residence, you would not qualify for the home sale gain exclusion. The gain or loss when you sell would generally be characterized as capital gain or loss. And, since you owned the condo for more than one year, it's considered a long-term capital gain or loss.

The capital gain will generally be taxed at 0%, 15%, or 20% — plus the 3.8% net investment income tax (NIIT) for people with higher incomes. However, a special rule applies to gain on the sale of rental property for which you took depreciation deductions.

When depreciable real property held for more than one year is sold at a gain, the federal tax law requires that previously deducted depreciation be recaptured into income and taxed at a top rate of 25%. This is known as unrecaptured Section 1250 gain, the number of its federal tax code section.

2. Inheriting rental property and taxes

Question: I own rental property. When I die, I plan to leave it to my child. Does he get a step up in basis in the property upon my death? Also, what happens to the depreciation that I had previously deducted on the property?

3. The net investment income tax for landlords

Question: I own a triplex, and I rent out all three apartments in the building. I am thinking of selling the property in the next year or so. I know I will pay capital gains tax on the sale. Will I also have to pay the 3.8% net investment income tax?

Joy Taylor: Maybe. The additional 3.8% net investment income (NII) tax applies to single filers with modified adjusted gross income (AGI) over $200,000 and to joint filers with modified AGI above $250,000. The modified AGI threshold is $125,000 for married people filing separate tax returns. These modified AGI amounts aren’t inflation-indexed, leading to more filers paying the NII tax each year.

The NII tax, which is added to the regular income tax, is due on the smaller of NII or the excess of modified AGI over the threshold amounts. NII includes dividends, capital gains, taxable interest, annuities, royalties, passive rents and certain income from other passive activities.

4. Selling a rental that you previously lived in

Question: I own a home that I lived in from 2014 to 2017. I then married and moved into my wife's new home. I rented out my old home from 2017 until now. I plan to sell it this year. How do I establish my tax basis for purposes of determining gain or loss when I sell?

Joy Taylor: Your tax basis in the rental home is as follows: (1) the lesser of your original cost or fair market value of the home at the time you started renting it, plus (2) the cost of improvements to the home, less (3) depreciation taken on the home. IRS Publication 544, Sales and Other Dispositions of Assets, has more information.

5. Selling a duplex

Question: My wife and I own a duplex. We live in the upstairs unit, and a tenant lives in the downstairs unit. The upstairs and downstairs units each have separate addresses. We are now considering selling the full duplex. Can we take the full $500,000 home-sale exclusion when we sell?

Joy Taylor: The up-to-$500,000 gain exclusion applies only to the portion of your duplex that you used for residential purposes (not rental or business purposes). Below is relevant language from IRS Publication 523, Selling Your Home:

"You generally can’t exclude gain on the separate portion of your property used for business or to produce rental income. Examples are: (1) a working farm on which your house was located, (2) a duplex in which you lived in one unit and rented the other, or (3) a store building with an upstairs apartment in which you lived."

"[A]n allocation of the gain is required. For this purpose, you must allocate the basis of the property and the amount realized between the residential and nonresidential portions of the property using the same method of allocation that you used to determine depreciation adjustments. Report the sale of the business or rental part on [IRS] Form 4797."

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Ask the Tax Editor, May 29: Will Congress Enact More Tax Changes?

joy.taylor@futurenet.com (Joy Taylor) — Fri, 29 May 2026 12:15:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on whether Congress will enact more tax changes before November's mid-term elections and related topics.(Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Congress and tax changes

Question: Do you think Congress will enact more tax changes before this November's midterm elections?

Joy Taylor: No, we really don't expect any big federal tax changes to pass before November's midterm elections. That's not to say that many in Congress wouldn't like to see more tax changes. Republican taxwriters are pushing for tax legislation to supplement last year's "One Big Beautiful Bill." Meanwhile, some Democrats are offering sweeping tax plans, while others are introducing narrower proposals to curb what they see as tax schemes for the wealthy.

Some Republicans in Congress want to use budget reconciliation to shove their tax priorities through Congress. This process has lots of technical and arcane rules, but it lets lawmakers circumvent the 60-vote filibuster rule in the Senate. Budget reconciliation requires only a simple-majority vote. Congressional Republicans used it to pass the OBBB and the 2017 Tax Cuts and Jobs Act, among other laws. Democrats have also used it when they controlled Congress and the White House.

Republicans are currently working on a new budget reconciliation measure, but President Trump and congressional GOP leadership want to limit its parameters to funding Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP). There is talk on Capitol Hill about trying to push through a third reconciliation bill, but the odds of this happening before the midterm elections are middling at best.

2. Capital gains indexing

Question: I heard that Republicans are pushing to index capital gains to account for inflation each year. Can you explain what this would do and whether Congress would enact such a law?

Joy Taylor: Republican lawmakers and conservative free-market groups are pushing the White House to index capital gains to inflation each year. Essentially, this would let taxpayers increase their tax basis in appreciated assets, such as stocks and real estate, by the rate of inflation between the asset’s purchase date and the time of sale. Having a higher asset basis would result in a lower capital gain when the person sells the property, and thus a lower tax.

This idea has been bandied about for decades but is gaining steam again during President Trump’s second term in office. Over 25 organizations asked that Trump use his executive authority to annually index capital gains to inflation. And Senator Ted Cruz (R-TX) has introduced a bill in Congress to index capital gains to inflation.

We don't think Congress will enact a law this year to index capital gains to inflation. But the concept might make Trump's regulatory agenda. If Trump does this through the Department of the Treasury, and not with legislation, it would be controversial and would almost certainly face legal backlash. We don’t know where Trump stands on the idea. During his first term in office, he first supported capital gains indexing, and later he opposed it.

3. Gain on home sales

Question: I heard there were bills in Congress to fully eliminate the taxation of gain when homeowners sell their primary residence. What are the odds that Congress would pass such a proposal?

Joy Taylor: Under current law, if you have owned and lived in your principal residence for at least two out of the five years before you sell the home, up to $250,000 of the gain is tax-free. The tax-free home sale gain exclusion is $500,000 for married couples filing a joint return. Any gain in excess of these amounts is taxed at long-term capital gains rates of 0%, 15% or 20%, with possibly an extra 3.8% tax.

Many sellers won't crack the gain exclusion limits. But homeowners living in pricey areas or who have owned their home for a long time may. One reason for this is that the home-sale exclusion, unlike many other breaks in the tax code, isn't indexed to inflation each year. The gain-exclusion amounts of $250,000 and $500,000 have stayed the same since 1997, when they were first enacted into law. They have never been adjusted for the skyrocketing appreciation in value of residential real estate during the nearly 30 years this tax break has been in effect.

It is true that some Republican lawmakers want to make all gain on home sales tax-free and have introduced proposals in Congress to this effect. President Trump has even dangled this idea. But we don't see this coming to fruition any time soon. These types of proposals would put a huge dent in federal revenue and would mainly benefit upper-income individuals.

A more feasible legislative option might be to raise the current $250,000 and $500,000 gain-exclusion amounts. Two bills would increase the exclusion to $500,000 ($1 million for joint filers). The identical bipartisan proposals, which were introduced by House Representative Jimmy Panetta (D-CA) and Senator John Cornyn (R-TX), would also index the amounts to inflation each year. The odds of enactment are better than they have been in past years, but it is still a steep climb. Neither of these bills will be enacted as a stand-alone law, so it must be attached to a bigger piece of must-pass legislation.

4. Health premium tax credit

Question: Do you think Congress will bring back the pre-2026 expansions to the health premium tax credit?

Joy Taylor: We think the odds of Congress reaching a deal on health premium tax credits ("PTC") are quite slim. The PTC is for eligible people who buy insurance through the marketplace. Temporary easings, which were enacted during the height of the COVID-19 pandemic and later renewed, ended after 2025. Prior to 2021, the PTC was available to people with modified adjusted gross incomes ranging from 100% to 400% of the poverty level. For 2021-25, some people with higher modified AGIs also qualified, and the credit was bigger for many individuals. Beginning January 1, 2026, the PTC rules reverted to those in place for pre-2021 years.

Democrats want the pre-2026 PTC expansions cleanly extended. Republicans want changes made to narrow the scope of the PTC. The parties appeared close to an agreement earlier this year, but talks have stalled as Congress’s attention is diverted elsewhere.

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Ask the Tax Editor, May 22: Roth IRAs and the Five-Year Rule

joy.taylor@futurenet.com (Joy Taylor) — Fri, 22 May 2026 12:00:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on Roth IRAs and the five-year rule, including contributions and conversions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the Roth IRA five-year rule?

Joy Taylor: The five-year rule your question refers to applies to Roth IRA contributions, rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the year the owner first put money into a Roth IRA. For this first five-year rule, the five-year clock starts on January 1 of the year you first deposited money into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t restart for later Roth contributions, conversions, or newly opened Roth IRA accounts.

Note there is another five-year rule that applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pretax income from traditional IRAs to a Roth. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above.

For more on both of the five-year rules applicable to Roth IRAs, see our article, "What to know about the five-year rules for Roth IRAs."

2. When does the five-year rule start?

Question: I am 68 and have been doing Roth IRA conversions for the past three years. My first Roth conversion was in 2023. When does the clock start for the five-year rule? And are there separate five-year clocks for each Roth IRA conversion that I do?

Joy Taylor: In your situation, the five-year clock for withdrawing Roth IRA earnings tax-free begins on January 1 of the year that you first put money into any Roth IRA that you own, whether through contributions, rollovers or conversions. So if you first started funding a Roth IRA in 2023, and you don't have other pre-existing Roth IRAs, the five-year period begins on January 1, 2023. It doesn't restart after each conversion.

3. Another question on when the five-year rule starts

Question: I am 70 years old, and I have been doing Roth conversions over the past 10 years. My initial conversion was in 2017, and each year thereafter I converted more money. Does each conversion date have its own separate five-year period or does the five-year period start when I made my first conversion in 2017? I have no other Roth IRAs other than the one I opened in 2017.

Joy Taylor: In your situation, the applicable five-year rule begins on January 1 of the year you first put money into any Roth IRA, via contribution or conversion. And it doesn’t restart. Since your first Roth conversion was in 2017, you are in the clear, and your Roth distributions should be fully tax-free.

4. How does the five-year rule apply to transfers from a Roth 401(k) to a Roth IRA?

Question: I am 64, and I recently retired from my full-time job. While working, I contributed for many years to a Roth 401(k) account. A few months ago, I transferred the funds in that designated Roth 401(k) account to a Roth IRA. Can I start withdrawing money from my Roth IRA tax-free?

Joy Taylor: The general rule for Roth IRAs is that distributions of earnings are nontaxable, provided you are 59½ or older. There is an exception, what experts refer to as the five-year rule. Distributions of earnings taken out within five years of January 1 of the year you first contributed to a Roth IRA are taxed.

You may have had the Roth 401(k) for five or more years, but unfortunately, that time period doesn't transfer to the Roth IRA. So, if this is your first Roth IRA, and you don't have any other Roth IRAs that you had contributed to in the past, the five-year rule would apply. The five-year period begins on January 1 of the year you first put money into any Roth IRA, either through contributions, rollovers or conversions. The ordering rules that apply to distributions from Roth IRAs may mitigate some of the negative tax consequences in your situation. I would suggest speaking with a CPA or your financial planner for more information.

About Ask the Editor, Tax Edition

Ask the Tax Editor, May 15: Deductions for Self-Employed Retirees

joy.taylor@futurenet.com (Joy Taylor) — Fri, 15 May 2026 13:45:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on available tax breaks for retirees with a side hustle. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Medicare premiums

Question: I am 72 years old, and I pay monthly Medicare premiums. I retired from my full-time job four years ago. I am now a part-time consultant and file Schedule C, reporting my income and deductions from my part-time gig, with my federal tax return. My financial advisor said I can deduct my Medicare premiums that I pay, even though I don't itemize on Schedule A. Is that true?

Joy Taylor: Yes. As a general rule, medical expenses, including premiums paid for medical insurance and Medicare premiums, are deductible only by itemizers on Schedule A, and only to the extent that total medical expenses exceed 7.5% of adjusted gross income. There is an exception for self-employed individuals who file Schedule C. They can deduct premiums that they pay for medical and dental insurance and qualified long-term-care insurance without itemizing on Schedule A. They claim the self-employed health insurance deduction on Form 1040, Schedule 1, part II, line 17. Parts A, B and D Medicare premiums that you pay for insurance in your name are part of that deduction.

2. Business driving

out expenseQuestion: I retired from my full-time job a few years ago and receive a pension. I decided this year to take on part-time work as a dog walker. I work for myself, and I drive to my clients' homes to walk their dogs. I plan to file Schedule C with my 2026 Form 1040. Can I deduct the standard mileage rate for my business driving?

Joy Taylor: Yes. The cost of business driving for self-employed individuals is a deductible business expenses. You can claim either your actual expenses, including gas, repairs and depreciation on your car, or the IRS's standard mileage allowance. For 2026, the standard mileage rate for business driving is 72.5 cents per mile. If you use the IRS's standard mileage rate, you can also deduct the cost of any tolls or parking fees that you pay.

Be sure to keep a contemporaneous mileage log detailing each of your dog-walking trips. It will make it much easier for you to figure your total business mileage when you are preparing your tax return. It will also help you if you are ever audited by the IRS. Sloppy recordkeeping makes it easy for an IRS revenue agent to disallow your deduction.

3. Qualified business income deduction

Question: I recently retired from my full-time job, and I am now an independent freelance writer. I plan to file Schedule C with my 2026 Form 1040. Can I claim the 20% qualified business income deduction?

Joy Taylor: Generally, yes. Self-employed people, independent contractors and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their qualified business income (QBI), subject to limitations for individuals with taxable income in 2026 of more than $403,500 for joint filers and $201,750 for single filers and head-of-household filers. This tax break, first enacted in the 2017 Tax Cuts and Jobs Act, was slated to end at the end of 2025. But last summer's "One Big Beautiful Bill" permanently extended the QBI write-off.

Note that you don't claim the QBI deduction on Schedule C. Instead, you would attach Form 8995 or 8995-A to your return and take the write-off on line 13a of Form 1040.

4. Home office

Question: I am a lawyer. I retired five years ago from my law firm. Even though I'm retired, I still do legal work for some clients on a part-time basis. I am an independent contractor now and file Schedule C with my tax return. I recently turned one of the bedrooms in my house into a home office where I can do my work. Can I claim the home office deduction on Schedule C?

Joy Taylor: Yes, if you meet all of the rules for claiming the write-off. Even though employees can't take a deduction for home office expenses, the write-off is available to self-employed people or independent contractors who file Schedule C with their 1040 and use a room or space in their home or apartment exclusively and regularly as their principal place of business. If you qualify for the write-off, there are two ways to figure the deduction. You can allocate your actual costs on Form 8829. Or you can use a simplified option by deducting $5 per square foot of space used exclusively for business, up to 300 square feet, resulting in a $1,500 maximum write-off.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, May 8: Will I Be Audited by the IRS?

joy.taylor@futurenet.com (Joy Taylor) — Fri, 08 May 2026 11:20:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on your chances of an IRS tax audit and audit red flags you should know. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What are my chances that I will be audited by the IRS?

Question: I am getting ready to file my 2025 tax return (I applied for a filing extension). Friends have told me that I don't have to worry about IRS audits anymore. Is that true

Joy Taylor: No. That information is incorrect. It is true that major cuts to the IRS's funding and its workforce will reduce the number of tax audits the agency can do each year. In recent years, the IRS audit rate for individuals was significantly below 1%, and we expect this figure to continue to decline, at least over the next few years. But that doesn't mean it's a tax cheat free-for-all. According to IRS leaders, there will be fewer overall audits, but the exams that are done will be more targeted.

The IRS is relying more on data analytics and artificial intelligence to more precisely identify high-risk noncompliance and to improve efficiency. Data-mining software can sift through taxpayer data, expose suspicious activity and identify audit cases.

Additionally, your chances of an IRS audit could go up, depending on various factors or red flags, including the amount of income you report, the complexity of your return, the types and amounts of deductions or other tax breaks you claim, whether you're engaged in a business, or whether you own foreign assets.

2. Tax audits and refundable tax credits

Question: I am a tax preparer, and many of my clients claim refundable tax credits on their federal returns, such as the earned income credit, the refundable portion of the child credit, the Obamacare premium credit and the American Opportunity credit. I heard that the IRS will be eyeing these credits more than ever before. Do you think this is true?

Joy Taylor: Yes. The IRS's enforcement arm is feeling the brunt of the government funding cuts and recent employee resignations and layoffs. Many of the workers who retired or left the IRS were experienced agents and managers with deep knowledge of the tax law and the processes for conducting complex tax audits of individuals and businesses.

We expect that the IRS will go after low-hanging fruit, such as questionable refundable tax credits claimed on tax returns. Most of these audits are done through correspondence, meaning the taxpayer never meets with an IRS employee. They're a bit more cost-effective, since the audit is generally limited to only one or two issues. The IRS also knows that there is lots of money lost each year to erroneous claims of refundable tax credits. The IRS estimated it improperly paid $21.4 billion in refundable credits in fiscal year 2024 alone.

3. S corporation and partnership audits

Question: I am a partner in a closely held limited partnership. I heard that the IRS is using some of its $80 billion windfall from the Inflation Reduction Act to beef up audits of partnerships. Can you provide details on this?

Joy Taylor: It is true that the 2022 Inflation Reduction Act gave the IRS $80 billion to be withdrawn over 10 years for improved taxpayer service, increased enforcement efforts and modernization. In 2023 and 2024, the IRS went on a hiring spree and began to beef up enforcement areas that were neglected over the past decade or so. This included audits of pass-through entities, such as partnerships, LLCs and S corporations, and exams of higher-income individuals.

Much of the IRS's efforts to bolster its enforcement arm were for naught. The vast majority of the IRS's $80 billion windfall has been rescinded by Congress. And since President Trump began his second term in office in January 2025, the IRS has lost over 20% of its total workforce, and its annual funding has declined. And things promise to only get worse for the agency. The Trump administration's fiscal year 2027 budget request for the IRS includes an 18% additional cut in enforcement money and projects fewer than 25,000 total enforcement employees.

The IRS's scarcer audit resources are leading to decreased numbers of audits, including audits of high-income individuals and partnerships. The number of IRS audits of individuals with $10 million or more of income and partnerships has fallen from 6,786 and 3,174, respectively, in fiscal year 2025 to 2,264 and 2,932 in fiscal year 2026. The IRS forecasts even further drops in these audits in fiscal year 2027.

4. Audit red flags

Question: What does the IRS take into account in deciding whether to audit a taxpayer's Form 1040?

Joy Taylor: We don't know exactly the IRS's formula for choosing returns to audit. That's a closely held secret. But we are aware of various factors or red flags that could escalate one's chance in the unenviable audit lottery.

I wrote a story setting forth 15 IRS audit red flags. They are:

Failing to report all taxable income
Making a lot of money
Failing to file your income tax return
Taking higher-than-average deductions, losses or credits
Claiming refundable tax credits
Taking large charitable contribution deductions
Running a business
Writing off a hobby loss
Failing to report self-employment income and pay self-employment taxes
Claiming rental losses
Taking a distribution from an IRA or 401(k) before age 59½
Failing to report gambling winnings or claiming big gambling losses
Claiming the foreign earned income exclusion when working overseas
Engaging in virtual currency or other digital asset transactions
Failing to report a foreign bank account

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, May 1: 10-Year Rule for Inherited IRAs

joy.taylor@futurenet.com (Joy Taylor) — Fri, 01 May 2026 10:50:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five questions on inherited IRAs and the 10-year cleanout rule for non-spousal inherited IRAs. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. 10-year cleanout rule for inherited IRAs

Question: Last year, I inherited a traditional IRA from my 89-year-old father. Do I have to withdraw all the money within 10 years or can I take distributions over my lifetime?

Joy Taylor: Before 2020, deceased owners of IRAs could leave their accounts to their children, grandchildren or other individual beneficiaries, and those heirs could stretch required minimum distributions (RMDs) from inherited traditional IRAs over their own lifetimes, thus allowing the funds in the accounts to grow tax-free for decades. Congress saw this as a loophole for the rich and, in the 2019 SECURE Act, curtailed the break for most nonspousal beneficiaries.

For most nonspousal IRAs inherited after 2019, the IRA funds must be distributed to the beneficiary within 10 years of the owner’s death. So, if an IRA owner dies in 2025, as is your case, the beneficiary must clean out the IRA no later than December 31, 2035. There are exceptions for beneficiaries who are surviving spouses or minor children (until age 21) of the account owner, chronically ill or disabled, or not more than 10 years younger than the deceased IRA owner.

If an IRA owner dies before his or her beginning RMD date, and the beneficiary is subject to the 10-year clean-out rule, the beneficiary needn’t take a minimum distribution each year. The beneficiary can immediately cash out, opt to wait until year 10 to get the money, get yearly distributions, or skip years, provided the IRA is fully depleted by the end of the 10-year period.

If an IRA owner dies on or after his or her RMD start date, then the beneficiary must withdraw, at a minimum, annual RMDs from the inherited IRA during the 10-year period, generally beginning with the year after the original owner died, and then fully deplete the IRA by year 10 at the latest. In this situation, the beneficiary generally figures annual RMDs based on his or her life expectancy, so the younger the beneficiary, the smaller the yearly RMD amounts.

Since your father died in 2025 at 89 years old, he would have been taking annual RMDs from his IRA. As such, you will also have to begin taking annual RMDs from the inherited IRA beginning this year, based on your life expectancy. You will also have to deplete the IRA by December 31, 2035, at the latest. Note that you can withdraw more than your annual RMD in any given year, but you can't withdraw less.

There is relief if the IRA owner died in 2020, 2021, 2022 or 2023. Beneficiaries of IRAs in which the original owner was already subject to RMDs won’t be penalized for not taking distributions in 2021-24. They needn’t make up for the missed distribution. But they must take an RMD starting in 2025. This relief wouldn't apply to you because your father died in 2025.

2. Beneficiary not more than 10 years younger than the deceased

Question: My sister died earlier this year at age 55, and I am the sole beneficiary of her traditional IRA. I am 50 years old. How does the 10-year clean-out rule for inherited IRAs apply to me?

Joy Taylor: You don't have to worry about the 10-year cleanout rule. Because you are not more than 10 years younger than your deceased sister, you are considered an "eligible designated beneficiary" under the inherited IRA rules. So you can stretch annual RMDs from the inherited IRA over your lifetime beginning in 2027, the year after your sister died.

In your case, you would figure your annual RMD based on your life expectancy. You would use Table I of Appendix B in IRS Publication 590-B for this calculation.

3. Decedent's final RMD from a traditional IRA

Question: My 82-year-old sister died earlier this year, and I am the sole beneficiary of her traditional IRA. The IRA custodian told me that she didn't take her full RMD for 2026 before she died, and I have to withdraw the remaining RMD for 2026. Is this true?

Joy Taylor: Yes. If an owner of a traditional IRA dies before taking all of his or her RMD for the year, the amount must still be withdrawn from the account. This distribution is generally paid to the beneficiary, and not to the deceased owner or his or her estate. The beneficiary is taxed on the distributed amount. The year-of-death RMD is figured using Table II or III in Appendix B of IRS Publication 590-B, based on the decedent's life expectancy and as if he or she lived for the entire year.

It used to be that that the IRA beneficiary had until December 31 of the original IRA owner's year of death to take that final RMD for the deceased owner. But the IRS has relaxed the rules to give the beneficiary more time to withdraw the decedent's final RMD. According to the IRS, the beneficiary must take the decedent's final RMD by the later of (1) the tax return deadline for the beneficiary's income tax return for the year of the decedent's death or (2) December 31 of the year following the year the decedent died. So in your case, you would have until December 31, 2027, to withdraw your deceased sister's final RMD for 2026.

4. Qualified charitable distribution from an inherited IRA

Question: I am 76, and I inherited a traditional IRA from my 84-year-old sister last year. Can I do a qualified charitable distribution (QCD) from my inherited IRA?

Joy Taylor: Yes. People age 70½ and older can transfer up to $111,000 in 2026 from a traditional IRA directly to charity. QCDs can be done only from an IRA, either one that you own or an inherited IRA. You can’t do them from a 401(k) or other workplace retirement plan.

QCDs are nontaxable and aren't included in your adjusted gross income (AGI). And they can count toward your RMD, thus reducing the taxable amount of the RMD, provided you do the QCD before withdrawing your full RMD for the year.

5. 10-year clean-out rule for inherited Roth IRAs

Question: Are nonspousal inherited Roth IRAs subject to the 10-year clean-out rule?

Joy Taylor: Yes. Similar to the rules for traditional IRAs, many non-spousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death. But the money is tax-free to them. Also, because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roth IRAs needn’t worry about whether the original account owner died before or after the starting date for taking RMDs. These beneficiaries can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years or get annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, April 24: How Can I Resolve My IRS Tax Debt?

joy.taylor@futurenet.com (Joy Taylor) — Fri, 24 Apr 2026 10:50:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions relating to how individuals can resolve their IRS tax debt. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. IRS alternatives for resolving tax debt

Question: When I filed my 2025 federal tax return this month, I unexpectedly owed taxes. But I don't have the money to pay the bill. What can I do to resolve my IRS tax debt?

Joy Taylor: Try not to worry too much because you are not alone. Millions of individuals owe tax debt to the IRS. The agency has a number of alternatives to help individuals resolve their tax debt.

If you have a financial hardship, you can contact the IRS to request a temporary collection delay until your financial condition improves. Also, look into submitting an offer in compromise to settle your tax debt at less than what you owe or applying for an IRS online payment plan.

The IRS has a new online tool for individuals and businesses with federal tax debt. The tool provides them a simple way to explore payment options for unpaid taxes and to identify next steps based on their circumstances. If you decide to use the tool, you will need to answer a series of questions about your financial situation and your tax debt, and the tool will guide you to potential payment alternatives.

2. Should I submit an offer in compromise?

Question: I owe tax debt to the IRS. A friend told me I should submit an offer in compromise to the IRS, and it will automatically reduce the taxes that I owe. Is it really that easy?

Joy Taylor: Unfortunately, no. Your friend is correct that the IRS accepts offers in compromise (OIC) to settle tax debt at less than what the taxpayer owes. But the process isn't automatic. The key factor that the IRS takes into account when reviewing an OIC application is the taxpayer's ability or inability to pay the balance in full, and whether full payment would result in financial hardship. That's why you must disclose your income and your assets to the IRS in your OIC application.

If you're thinking of submitting an OIC to the IRS, you will want to review the IRS's Offer in Compromise Form 656 Booklet for the rules and the forms. There are two payment options you can choose from when submitting your OIC. The lump sum cash option requires you to pay 20% of the total offer amount up front, with the remaining balance to be paid in five or fewer installments within five months of the date your offer is accepted. There is also the periodic payment option, which requires that you make your first payment with the offer, with the remainder remitted monthly over a period of six to 24 months.

Here are some more tips if you're thinking about making an OIC:

Be sure you have filed all required federal tax returns. Otherwise, the IRS will return your application and the filing fee, and apply any initial payment included with your submission to your tax debt.
Continue to timely file your tax returns and pay taxes even after the IRS accepts your OIC.
Individuals or businesses in bankruptcy cannot apply for an OIC.
There is a $205 application fee. Low-income individuals are exempt from paying this.
The IRS has an online tool for individuals to check preliminary eligibility for filing an OIC with the IRS.

3. Avoid offer-in-compromise "mills"

Question: I owe tax debt and I'm thinking of submitting an offer in compromise. Can I prepare the OIC application myself or should I use a tax professional?

Joy Taylor: It is up to you whether you want to try preparing the OIC application yourself and submitting it to the IRS or use a tax professional. It depends on your knowledge of taxes and finances. Note that a reputable tax professional who is familiar with submitting OICs and dealing with IRS collection employees can help guide you through the process, which may make it less stressful for you. You can also ask for IRS assistance with the process.

Whatever you do, avoid offer-in-compromise "mills," the IRS's term for companies and promoters that hawk tax-debt relief plans with promises to settle your debts at steep discounts. I'm sure you've seen the commercials on TV or heard ads on the radio from firms promising to settle your tax debt for pennies on the dollar. These companies charge big up-front fees and churn out applications for offers in compromise that most of their clients cannot qualify for, the IRS says.

4. The IRS used my refund to offset taxes I owed

Question: I owe tax debt to the IRS from prior years. I filed my 2025 tax return this year, and the IRS took my refund and applied it against my prior-year taxes. Is this legal?

Joy Taylor: Yes. If you owe back income taxes, the IRS can grab your current-year refund and apply it against the amount you owe. The same can happen if you owe nontax debts to a federal agency, state income taxes, certain unemployment compensation debts owed to a state or past-due child support. The IRS can take your current-year federal income tax refund and apply it against any of these past-due obligations.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, April 17: Questions on Tax Refunds and Penalties

joy.taylor@futurenet.com (Joy Taylor) — Fri, 17 Apr 2026 10:20:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on tax refunds, how to get the IRS to abate a penalty and related topics. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Erroneous bank account information for tax refund

Question: I helped my granddaughter prepare her tax return and claim a refund. I filed her 2025 Form 1040 using the same bank account information shown on her 2024 Form 1040. However, I was unaware that my granddaughter had changed banks. How do I notify the IRS of her correct bank account information?

Joy Taylor: The best answer to your question comes directly from the IRS. The IRS has a web page that answers the question "what should I do if I entered an incorrect routing or account number for direct deposit of my refund?"

For example, if a taxpayer omits a digit in the account or routing number of an account and the number doesn't pass the IRS's validation check, then the IRS says it will send you a notice asking for more information. Note that if you catch the bank account error early enough, before the return has been posted to the IRS's system, then you can call the IRS on their 1-800 line and ask the agency to stop the direct deposit. Here is more information directly from the IRS on what you can do:

"Generally, if the financial institution recovers the funds and returns them to the IRS, the IRS will send you a notice providing the next steps."

"If you have contacted the financial institution and 5 calendar days have passed with no deposit, you will need to file IRS Form 3911, Taxpayer Statement Regarding Refund, to initiate a trace. This allows the IRS to contact the bank on your behalf to attempt recovery of your refund. Banks are allowed up to 90 days from the date of the initial trace input to respond to our request for information, but it may take up to 120 days for resolution."

"If funds aren't available or the bank refuses to return the funds, the IRS cannot compel the bank to do so. The case may then become a civil matter between you and the financial institution and/or the owner of the account into which the funds were deposited."

2. Refunds by paper check delayed

Question: I have a bank account, but I don't like using it for electronic payments or receipts. I filed my 2025 Form 1040, which claimed a refund. I didn't include my bank account information on the return because I want to receive my refund as a paper check. I got a letter from the IRS asking for my bank account information. What can I do if I still want a paper check?

Joy Taylor: The IRS is in the process of phasing out paper refund checks in accordance with President Trump's March 2025 executive order. Individuals who request paper refund checks when filing their Form 1040 are seeing their refunds delayed. The IRS is mailing letters to filers whose 1040s claim a refund but omit bank account details for direct deposit. These notices ask the filers to supply their bank account information within 30 days or say why they can’t. I am guessing this is the letter that you received from the IRS.

If you don't respond to the IRS notice, you will eventually get your refund check in the mail, but it will take time. According to the IRS, it will issue a paper check to nonresponders six weeks after the date it sent the original notice.

3. How the IRS calculates the underpayment penalty

Question: I am filing my 2025 Form 1040, and I know I am going to owe an underpayment penalty. How does the IRS calculate this penalty?

Joy Taylor: Generally, taxpayers will escape the underpayment penalty if they prepay, through estimated tax payments or withholding, at least 90% of their current-year total tax bill or 100% of what they owed for the prior year (110% if prior-year adjusted gross income exceeded $150,000). Taxpayers who owe an underpayment penalty use IRS Form 2210 to calculate the amount owed. I am aware that calculating the underpayment penalty can be confusing.

The IRS calculates the underpayment penalty based on the tax shown on your original return or on a more recent return that you filed on or before the due date. The tax shown on the return is your total tax minus your total refundable credits. The IRS calculates the penalty based on: (1) the amount of the underpayment, (2) the period when the underpayment was due and underpaid, and (3) the unpublished quarterly interest rates for underpayments.

Note that the IRS also charges interest on the underpayment penalties.

4. First-time penalty abatement

Question: For the first time ever, I am going to have to file my Form 1040 late. I know I will end up owing taxes when I file the return. Will the IRS be lenient in assessing penalties since I have always been tax-compliant?

Joy Taylor: You may be in luck. The IRS has a little-known first-time penalty abatement policy. It will approve a waiver of the late-filing and late-payment penalties for filers who pay or arrange to pay the tax due and have been tax-compliant for the past three years. The penalties for late payroll-tax deposits and delinquent returns of S corporations or partnerships are also eligible for the waiver if the conditions are satisfied. But the estimated-tax penalty (also called the underpayment penalty) doesn't qualify for this penalty abatement program.

You may have to request the waiver. If you get a notice from the IRS showing a late-payment or late-filing penalty due but not abated, follow the instructions in the letter or call the phone number on the notice. The IRS has said that it will begin to automatically provide first-time penalty abatement to taxpayers who qualify for relief, starting with 2025 tax returns filed this year. But I am not sure whether the IRS has yet implemented this automatic procedure.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, April 10: Questions on Selling a Home

joy.taylor@futurenet.com (Joy Taylor) — Fri, 10 Apr 2026 13:15:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five questions on the home-sale tax exclusion, calculating tax basis in your home and related topics. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Home-sale exclusion

Question: I am planning to sell my home in the next few months. I have lived in the home for many years. Will my gain be taxed?

Joy Taylor: It depends. Generally, if you have owned and lived in your main home for at least two out of the five years before the sale date, up to $250,000 ($500,000 for joint filers) of your gain when you sell the home is tax-free. Any gain above the $250,000/$500,000 exclusion amounts is taxed at long-term capital gains rates of 0%, 15% or 20%, depending on the amount of your taxable income. Losses from sales of primary homes are not deductible.

2. Calculating tax basis in a home

Question: What expenditures can be added to the cost basis of a home to reduce capital gains when the home is sold?

Joy Taylor: To figure the tax basis in your home, you would start with the original cost (including the mortgage if you financed the purchase), add certain settlement fees and closing costs, and add the cost of any additions and improvements that add to the value of your home, prolong its useful life or adapt it to new uses.

IRS Publication 523 has some examples of improvements that increase your tax basis in the home and those that don’t. Examples of big-ticket items that increase basis include adding a room, installing new air-conditioning, renovating a kitchen, finishing a basement, or putting in new landscaping or a pool. Smaller-ticket capital improvements can also increase basis. These include new doors and windows, duct and furnace work, built-in appliances and water heaters. Repairs, maintenance and improvements that are necessary to keep your residence in good condition but don’t add value or prolong its life generally don’t hike the basis.

Note that if you used a room or other space in your home exclusively or regularly for business, or if you rented out your home in the past, you must reduce the tax basis in your home by any depreciation deductions you were eligible for.

Homeowners who keep good records will find it easier to calculate the tax basis. It’s best to keep all your home improvement receipts and invoices in one folder. If you didn’t keep these records, you can try to estimate the costs by looking at old bank or credit card statements, or call the company that originally did the remodeling or put in the upgrade.

3. Selling a duplex

Joy Taylor: No. The up-to-$500,000 gain exclusion applies only to the portion of your duplex that you used for residential purposes (not rental or business purposes). Below is relevant language from IRS Publication 523, 'Selling Your Home':

"You generally can’t exclude gain on the separate portion of your property used for business or to produce rental income... Examples are: (1) a working farm on which your house was located, (2) a duplex in which you lived in one unit and rented the other, or (3) a store building with an upstairs apartment in which you lived."

4. Inheriting a home

Question: My mom passed away a couple of years ago, and I inherited her home, which I have been using as a vacation home. I am now ready to sell that house. Will I be taxed on the sale?

Joy Taylor: When you inherited the home from your mom, your tax basis in the property was stepped up to the fair market value at her death. So when you sell, your gain will be equal to the difference between the sales price and your tax basis in the home. Your tax basis would start with the fair market value of the home upon your mom's death. You would add to this figure certain closing costs plus the cost of any improvements you made to the home after your mom's death that add value, prolong its life or adapt it to a different use.

If you have gained from the sale, then your gain would be treated as long-term capital gain, subject to the favorable 0%, 15% or 20% tax rates on long-term gains. If you have a loss from the sale, you cannot deduct it.

5. Tax basis in a home when one spouse dies

Question: My husband and I bought our Minnesota home in 1990 for $240,000. We moved out of state in 2010 and became Florida residents. My husband died in November 2025. I am now selling my Minnesota home for $610,000. What will be my taxable gain?

Joy Taylor: Since your Minnesota home isn't your primary residence and hasn't been for many years, you cannot claim the home-sale exclusion. But when your husband died, provided you and your husband owned the home jointly, you got a step up in tax basis in the home. Your basis after his death would equal to (1) half your original basis ($120,000) plus (2) half of any improvements made to the home that can be added to basis plus (3) half the fair market value of the home upon his death. Your taxable gain would be equal to the sales price of $610,000 less the amount from the preceding sentence. I am assuming for this answer that you kept the Minnesota home as a second residence and didn't rent it out or otherwise use it for business.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, April 3: Questions on Tax Return Filing Deadline

joy.taylor@futurenet.com (Joy Taylor) — Fri, 03 Apr 2026 13:15:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five questions on the due date for filing your federal tax return and related queries. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Form 1040 due date

Question: What is the due date for filing the 2025 Form 1040?
Joy Taylor: April 15 is the general filing deadline for Form 1040. If you can't file by then, you can request a six-month filing extension to file by October 15.

Some taxpayers get more time without having to file an extension.

Members of the military on duty outside the United States have until June 15 to file returns (but they must still pay taxes they owe by April 15).
U.S. citizens who live and work outside the United States have until June 15 to file returns (but they must still pay taxes they owe by April 15).
Active-duty military serving in combat zones have at least 180 days after leaving the combat zone to file and pay taxes.
Taxpayers in certain federally declared disaster areas have more time to file and pay taxes as set by the IRS.
This year, employees of the Dept. of Homeland Security who are impacted by the partial government shutdown have until May 15 to file returns and pay their taxes.

2. Tax return filing extension

Question: I think I will owe taxes this year when I file my Form 1040. If I file for an extension, can I delay paying my taxes until October 15?

Joy Taylor: Unfortunately, no. If you file for a six-month extension, the extra time extends only to filing your return, not to paying any taxes you owe. If you opt for a filing extension, you will have to estimate your tax liability to the best of your knowledge and pay the taxes that you think you will owe when you submit the filing extension on or before April 15.

You can get a filing extension in multiple ways, such as the following:

Use Free File on the IRS's website.
Pay through the Electronic Federal Tax Payment System or Direct Pay service and mark "extension."
Mail or electronically file IRS Form 4868 with your payment.

3. Getting a refund

Question: I have delayed filing my 2025 Form 1040, even though I know I will be getting a refund this year. If I'm not ready to file by April 15, do I have to request a filing extension?

Joy Taylor: No. Filing a refund return late will not subject you to penalties. That's because taxpayers owe late-filing or late-payment penalties only if they owe tax, not if they get a refund from the IRS.

4. Can't pay my taxes

Question: I haven't yet filed my 2025 tax return. That's because I know I will owe taxes, and I don't have the money to pay the tax bill. Should I just delay filing my tax return until I can come up with the money to pay my taxes?

Joy Taylor: No, you don't want to do that because the IRS will hit you with penalties. If you cannot pay the tax you owe by April 15, timely file your tax return anyway and pay what you can. Look into applying for an IRS online payment plan or submitting an offer in compromise with the IRS. If you have financial hardship, you can contact the IRS to request a temporary collection delay until your financial condition improves.

The IRS has a simple payment plan for individuals who owe $50,000 or less in taxes, penalties and interest. To set up a plan, you can use your IRS online account if you have one or call the IRS's main number. There are also options for other short-term and long-term payment plans.

5. One-time penalty abatement

Question: For the first time ever, I will have to file my tax return late and pay my taxes late. Does the IRS have any penalty relief for first-time offenders?

Joy Taylor: Yes. The IRS has a first-time penalty abatement policy for taxpayers who file a late return or pay their taxes late. The IRS will approve a waiver of the late-filing and late-payment penalties for filers who pay or arrange to pay the tax due and have been tax-compliant for the past three years. The penalties for late payroll-tax deposits and delinquent returns of S corporations or partnerships are also eligible for the waiver if the conditions are satisfied. But the estimated-tax penalty doesn’t qualify for this penalty abatement program.

You have to request the waiver. Currently, the IRS doesn’t give it automatically. If you get a notice from the IRS with tax due and penalty charges, follow the instructions in the letter or call the phone number on the notice.

We understand that the IRS may have begun, or will soon, automatically provide first-time penalty abatement to taxpayers who qualify for relief.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, March 27: Questions on the Tax Filing Season

joy.taylor@futurenet.com (Joy Taylor) — Fri, 27 Mar 2026 10:30:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on the IRS and how the 2026 tax filing season is going so far. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Calling the IRS

Question: I have been trying to reach the IRS on its main toll-free number (800-829-1040), but I can't reach a live person. Is this the norm?

Joy Taylor: Yes. Unfortunately, taxpayers and tax professionals are having a difficult time trying to reach the IRS by telephone. The agency just doesn't have enough workers to handle the volume of calls. So there are a lot of disconnects, and the wait times are very long.

I was recently in a meeting with an individual who was on hold with the IRS's main 1-800 number for 91 minutes before she got disconnected. She never was able to speak with a live person.

If you have a question on whether you qualify for a specific tax break or other type of tax law query, you might try using the IRS's interactive tax assistant online tool. All you need to do is enter some basic facts, and it will give you an answer. There are nearly 60 topics, including whether you need to file a tax return, who qualifies as dependents, exceptions to the 10% excise tax on early IRA distributions, amended returns and much more.

2. Delayed paper refund checks

Question: I am a tax return preparer, and I have filed returns for clients without bank accounts. These clients are now receiving letters from the IRS asking them to provide bank account information so that the IRS can deposit their refunds directly into their bank accounts. Is this normal?

Joy Taylor: Unfortunately, yes. It's part of the IRS's process of phasing out paper refund checks in accordance with President Trump's March 2025 executive order.

Individuals who are requesting paper refund checks when filing their Form 1040 are seeing their refunds delayed. The IRS is mailing letters to filers whose 1040s claim a refund but omit bank account details for direct deposit. These notices ask the filers to supply their bank account account information within 30 days or say why they can’t. Nonresponders will eventually get refund checks by mail, but they’ll have to wait at least six weeks past the 30 days until they see their money.

As of mid-March, the IRS mailed more than 1 million of these notices to taxpayers.

3. Finding a tax return preparer

Question: I am looking for someone to help me prepare my Form 1040. Do you have any thoughts on where I should look to find a reputable tax preparer?

Joy Taylor: You probably want a credentialed tax return preparer, meaning someone vetted by the IRS, a state or a regulatory board. The most common are CPAs, lawyers and enrolled agents. One way to find a credentialed preparer near you is to use the IRS's online Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. It lists the following tax professionals who have active preparer tax identification numbers:

CPAs
Lawyers
Enrolled Agents
People who completed the requirements for the IRS's voluntary annual filing-season program

4. IRS online individual accounts

Question: I have heard a lot lately about IRS online individual accounts. Can you explain what they are and how to create one?

Joy Taylor: Yes. Individuals can sign up for an online IRS account that could make their tax dealings with IRS easier and faster, many tax professionals say. Among the features of these accounts:

Pay estimated taxes
Access tax transcripts and other records
View digital notices from the IRS
Check the status of your tax refund or a filed amended return
Make tax remittances
Apply for a payment plan if you owe back taxes to the IRS

The IRS has a web page for setting up an online account for individuals. Note that before you create the account, you will first need to have an ID.me account so that the IRS can verify your identity. You will have to either submit a photo of your government ID and a selfie or participate in a live video chat with an ID.me representative. The process can be a bit burdensome, but it does add extra security.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, March 20: Questions on Tax Changes for 2026

joy.taylor@futurenet.com (Joy Taylor) — Fri, 20 Mar 2026 18:30:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on changes to charitable deductions and other tax breaks that first take effect in 2026. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Charitable deduction for nonitemizers

Question: I generally claim the standard deduction when I file my Form 1040. I heard that next year I can deduct my charitable gifts even if I don't itemize on Schedule A. Is this true?

Joy Taylor: Yes, but there is a limit. Last July's "One Big Beautiful Bill" (OBBB) lets nonitemizers deduct up to $1,000 of charitable cash gifts, beginning with 2026 returns filed in 2027. The amount is $2,000 for joint filers.

2. Charitable deduction haircut for itemizers

Question: I make lots of charitable gifts during the year, and I usually itemize on Schedule A. Did the OBBB make any changes to the charitable deduction for itemizers?

Joy Taylor: Yes. Starting with 2026 returns filed next year, charitable deductions claimed by itemizers on Schedule A get a bit of a haircut. The Schedule A charitable write-off is deductible only to the extent that total charitable donations exceed 0.5% of adjusted gross income (AGI). This is similar to the rules for deducting medical expenses, in which total eligible medical costs are deductible only to the extent they exceed 7.5% of AGI.

Here's an example. Say your 2026 AGI is $232,000, and you donate $14,000 to charity in 2026. If you itemize, you can deduct $12,840 of charitable contributions on your 2026 tax return ($14,000-($232,000 x 0.005)).

3. Carryover of excess charitable donations

Question: Can excess charitable donations caught by the 0.5% haircut be carried forward to the succeeding year?

Joy Taylor: Generally, no. Take the example from Q&A 2, where you have a person with 2026 AGI of $232,000 and $14,000 in charitable contributions. The filer can deduct $12,840 of charitable contributions on his 2026 tax return. The excess $1,160 of donations generally cannot be carried forward to 2027 and is permanently lost.

There is one exception. If a taxpayer has charitable-contribution carryforwards for the year, for example, because total cash donations exceed 60% of AGI, then the amount disallowed because of the 0.5%-of-AGI floor will increase the carryforward. But if the taxpayer has no current-year carryforwards, then the amount nixed because of the 0.5% rule is permanently lost.

4. Reduction in itemized deductions of upper-income filers

Question: My spouse and I have lots of income that we pay tax on each year, at the highest federal income tax rate. We always itemize on Schedule A. Are there any other changes to itemized deductions beginning in 2026, aside from the change to charitable contributions?

Joy Taylor: Yes. Beginning with 2026 returns filed in 2027, upper-income taxpayers will see their total itemized deductions reduced. Total itemized deductions will be decreased by 2/37 of the lesser of the amount of itemized deductions or the taxable income that exceeds the 37% federal income tax rate bracket amount. Some tax professionals describe this rule as effectively limiting the tax benefit of itemized deductions to 35%.

5. More changes for 2026

Question: Other than itemized deductions, did the OBBB enact any other big changes for individual filers that begin in 2026?

Answer: Yes. There are several OBBB tax changes that first take effect in 2026, meaning on 2026 tax returns that you file in 2027. Here are some of them:

The maximum child and dependent care credit for working parents increases to $1,500 for one dependent and $3,000 for two or more dependents.
Working parents can contribute up to $7,500 to a dependent-care flexible spending account at their workplace (the cap was $5,000 for many years).
More money can be taken out of 529 plans to fund K-12 education. Beginning this year, you can withdraw up to $20,000 per year for this type of schooling, an increase of $10,000 from the prior-year cap. And more K-12 expenses are covered. Note that there is no limit on the amount of tax-free 529 payouts to pay for college.
Forgiven college debt in 2026 or later years are no longer nontaxable. For 2021-2025, most student-loan indebtedness, including parent PLUS loans, that was forgiven in those years was tax-free for federal income tax purposes. This was an exception to the general rule that cancellation of debt income is taxable. The OBBB didn't extend this relief, so college loans that are forgiven in 2026 or later are again generally taxable.
Fewer people who buy health insurance on the marketplace will qualify for the health premium tax credit, and the credit will be lower for many than in past years.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, March 13: Questions on Medicare Premiums and IRMAA

joy.taylor@futurenet.com (Joy Taylor) — Fri, 13 Mar 2026 10:15:00 +0000

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on monthly Medicare premiums, IRMAA and tax-deductible medical expenses. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How do I calculate MAGI?

Question: How do I calculate modified adjusted gross income (MAGI) to determine whether I owe an income-related monthly adjustment amount (IRMAA) on top of my basic monthly Medicare Part B and D premiums? Is the untaxed portion of Social Security benefits added back in for this purpose?

Joy Taylor: True to the complexity of the federal tax code, the definition of MAGI often differs, depending on what it is used for. MAGI for purposes of determining IRMAA for Medicare purposes is your adjusted gross income shown on line 11 of your Form 1040 or 1040-SR, plus any tax-exempt interest income. As a result, the untaxed portion of your Social Security benefits is not included in MAGI.

2. What tax return year is used for determining MAGI?

Question: I am confused about the calculation of MAGI for determining monthly Medicare premiums. What year's tax return do the Centers for Medicare and Medicaid Services (CMS) and the Social Security Administration (SSA) look to for figuring out the amount of my 2026 IRMAA?

Joy Taylor: For determining MAGI for purposes of whether a Medicare recipient must pay IRMAA, CMS and the SSA generally look at the most recently filed federal income tax return. MAGI from the 2024 tax returns was used for determining whether a Medicare recipient owes IRMAA for his or her 2026 monthly Medicare Parts B and D premiums. That's because most people filed the 2024 return in 2025, and Medicare released its 2026 premiums in late 2025.

MAGI on your 2025 federal tax return will determine whether your are subject to IRMAA in 2027. MAGI on your 2026 federal tax return will determine whether you are subject to IRMAA in 2028. And so forth.

3. What if my MAGI has gone down?

Question: I have Medicare and pay monthly premiums for Parts B and D. For many years, I have been subject to IRMAA, so my monthly Medicare premiums are high. My husband just retired this year, so we will be reporting much less income on our tax returns for 2026 and later years than we had in prior years. Can I get a waiver from IRMAA for next year's monthly Medicare premiums?

Joy Taylor: Possibly. Your 2026 IRMAA premium surcharges are based on MAGI from your 2024 Form 1040. And your 2027 IRMAA premium surcharges will be based on MAGI from your 2025 Form 1040. But since your income is lower because of your husband's retirement, the SSA may give you a waiver from IRMAA if you request it.

The SSA provides for a Medicare Part B and D premium-surcharge waiver. People whose financial circumstances have changed because of divorce, retirement, death of a spouse or other major life-changing event may apply for relief to lower their IRMAA payments. You can request this easing by filing Form SSA-44 with the SSA. I think you might also be able to request the relief through your online Social Security account, if you have one.

4. Are Medicare premiums tax-deductible medical expenses?

Question: My spouse and I each pay monthly premiums for our Medicare coverage. Are the premiums we pay deductible medical expenses?

Joy Taylor: Yes, but you must itemize and not claim the standard deduction. Taxpayers who itemize on Schedule A of Form 1040 can deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of adjusted gross income. You can claim medical expenses that are not reimbursed by insurance for yourself, your spouse and your dependents.

To qualify as a deduction, the expense must be incurred primarily to alleviate or prevent a physical or mental disability or illness. The broad list of eligible expenses includes out-of-pocket payments for medical services rendered by doctors, dentists, optometrists and other medical practitioners; mental health services; health insurance premiums (including Medicare Parts B and D); annual physicals; amounts paid for in vitro fertilization; prescription drugs and insulin (but not over-the-counter drugs); hearing aids; transportation to and from the doctor’s office; the unreimbursed costs of long-term care; and many home improvements to accommodate a disability or illness.

For more information about what qualifies, see IRS Publication 502, “Medical and Dental Expenses.”

5. Can a self-employed person deduct Medicare premiums without itemizing on Schedule A?

Question: I am self-employed and single. I recently enrolled in Medicare and am now paying monthly Medicare premiums. I heard that self-employed individuals can deduct their monthly Medicare premiums without having to itemize on Schedule A. Is this correct?

Answer: Yes. Although most people must itemize on Schedule A to deduct their medical expenses, there is an important exception for self-employed individuals who pay health insurance premiums (including monthly Medicare premiums). They can deduct the health insurance premiums they pay on line 17 of Schedule 1 of the Form 1040. And the 7.5%-of-AGI haircut doesn't apply.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, March 6: Questions on the Senior Deduction and Tax Filing

joy.taylor@futurenet.com (Joy Taylor) — Fri, 06 Mar 2026 12:25:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. In the Ask the Editor July 18, 2025 column, she answered four questions on the new $6,000 senior deduction. This week she's looking at five more questions on the topic. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the new $6,000 senior deduction?

Question: I heard that there is a new $6,000 tax deduction for seniors. Can you explain it?

Joy Taylor: Last July's "One Big Beautiful Bill" created a new senior deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. This deduction is temporary, first taking effect on 2025 tax returns that you are filing this year, and ending after 2028.

Not every senior will qualify. The deduction begins to phase out at modified adjusted gross incomes (or modified AGIs) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $250,000 for joint filers and $175,000 for single and head-of-household filers. Also, each eligible spouse must have a Social Security number to claim this write-off. And if married, you must file a joint return to claim the deduction.

Modified AGI for this purpose is your adjusted gross income shown on line 11 of your federal tax return, plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

2. Is the senior deduction part of the standard deduction?

Question: My husband and I are both over 65 and we take the extra standard deduction for filers 65 and older. Is the new $6,000 senior deduction part of the standard deduction or is it a separate deduction?

Joy Taylor: The senior deduction is not part of the standard deduction. It is a brand-new deduction claimed on a new IRS schedule. As I mentioned above, the $6,000 senior deduction can be taken by filers who claim the standard deduction and by filers who itemize on Schedule A.

If you are 65 or older and claim the standard deduction, you would compute your standard deduction as normal and claim it on line 12e of your Form 1040. You would also complete new Schedule 1-A to see if you are eligible for the senior deduction and, if so, claim the amount on line 13b of your 1040.

3. How does the senior deduction work if we file separate tax returns?

Question: My husband and I are both over 65. We always file separate returns using the married filing separate status. Can each of us claim the $6,000 senior deduction on our separate tax returns?

Joy Taylor: No. Since you are married, you must file a joint return to claim the senior deduction. It is not available to married couples filing separate returns. If you do file a joint return, you can claim a $12,000 senior deduction, provided your modified adjusted gross income doesn't exceed the amount to qualify for the tax break.

4. How do I claim the senior deduction on my 2025 tax return?

Question: My wife and I are both over 65. How do we claim the new senior deduction on our Form 1040?

Joy Taylor: Taxpayers who qualify for the $6,000 senior deduction use new IRS Schedule 1-A to claim it. Fill out Part I of Schedule 1-A to calculate your modified AGI, and then complete Parts V and VI. Transfer the amount on line 38 of Schedule 1-A to line 13b of the 2025 Form 1040 (or line 13c of the 2025 Form 1040-SR). You can find the instructions for this Schedule in the Form 1040 instruction.

5. How is the modified AGI phaseout calculated?

Question: I know that the $6,000 senior deduction begins to phase out at modified AGIs over $150,000 on joint returns and $75,000 on single returns and head-of-household returns. But how is this phaseout calculated?

Answer: You are correct that the $6,000 senior deduction begins to phase out at modified AGIs over $150,000 on joint returns and $75,000 on single returns and head-of-household returns. The phaseout is calculated as follows: The $6,000 amount is reduced (but not below zero) by 6 percent of so much of a taxpayer’s modified AGI as exceeds $75,000 ($150,000 in the case of a joint return). The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers.

Schedule 1-A, which taxpayers will use to claim the senior deduction (as well as the new deductions for qualified tips, qualified overtime pay and interest paid on auto loans) will compute the phaseout for you.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, February 27: Questions on Tax Returns and Decedents

joy.taylor@futurenet.com (Joy Taylor) — Fri, 27 Feb 2026 11:20:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on how to file a tax return for someone who died. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Filing a joint return with a deceased spouse

Question: My husband died last year. Can I file a joint 2025 Form 1040 even though he's no longer with us?

Joy Taylor: When someone is deceased, the decedent's personal representative is generally required to file any final tax returns for the deceased person. That includes federal income tax returns that the decedent would have been required to file for the year of his or her death. A personal representative can be an executor, administrator, or anyone else who oversees the decedent’s property.

Since you were married in 2025, you would mark “married filing jointly” for the filing status and write your deceased spouse’s name and your name and address. If filing by paper, write “deceased” at the top of the 1040. If using tax preparation software, the software will automatically do this for you.

If there is a court-appointed representative, that person must also sign the 1040. If not, you would sign and write “filing as surviving spouse” in the decedent’s signature box.

If the return shows a refund due, there’s nothing you need to do to receive the refund.

2. Filing a return for a deceased sibling

Question: My brother died last year. He was not married. I am the executor of his estate. How do I file his final 2025 federal tax return?

Joy Taylor: Since your brother wasn't married, here are the rules for filing a tax return for an unmarried decedent. Mark his filing status as single or head of household. Write his name on the name line and your name and address in the remaining name and address field (since you are the executor of your brother's estate).

If filing a paper return, put “deceased” at the top of the Form 1040 and your brother's name and date of death. Tax preparation software will do this once you let it know the filer is deceased.

If you are a court-appointed or court-certified personal representative, then you should sign the return. As executor of your brother's estate, you would sign as the personal representative.

If your brother is due a refund, you may have to complete and attach Form 1310 to the return. This rule doesn't apply if you are a court-appointed or court-certified personal representative. Instead, you would have to attach to the return a copy of the court document showing the appointment.

3. Filing status after loss of a spouse

Question: My wife of 48 years died last September. When she was alive, we always filed joint returns. But now I want to file a separate return for 2025. Can I do this?

Joy Taylor: Yes. You, as the surviving spouse, can file your deceased wife's final return either as married filing joint or married filing separate. If you file a 2025 joint return with your deceased spouse, you would follow the instructions set forth in the answer to question 1 above. If you file a separate return for yourself for 2025, be sure to also file your deceased wife's separate 2025 return.

4. Filing a return for a widow with young kids

Question: My husband died suddenly last year. We have three young children under the age of 18. I know that I can file a joint tax return for 2025. But what about for 2026? What filing status should I use on my 2026 tax return?

Joy Taylor: You are correct that you can file a joint federal tax return for 2025. You would follow the instructions set forth in the answer to question 1.

For your 2026 return, it might benefit you to use the qualifying widow filing status. This lets surviving spouses with dependent children use the income tax brackets and standard deductions for joint filers for two years after the decedent’s death.

This means that if you remain unmarried, you can use the qualifying widow status on your 2026 and 2027 federal tax returns.

5. Other resources to find help

Question: A good friend of mine passed away last year. Are there any IRS resources I can turn to in figuring out how to file her final 2025 tax return?

Answer: Yes. The IRS has an online tool to help you file a deceased person's tax return. It's an interactive tax assistant. You will need to enter some basic information, and it will give you an answer. The tool is called "How do I file a deceased person's tax return?"

Note that the IRS's interactive tax assistant will also help answer questions on nearly 60 other topics, including who qualifies as a dependent, filing an amended return and much more. Go to www.irs.gov/help/ita to access the IRS tax assistant and to see a list of topics.

Additionally, you can find helpful information in IRS Publication 559, Survivors, Executors, and Administrators, and in the instructions to Form 1040.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, February 20: Questions on Tax Breaks for Caregivers

joy.taylor@futurenet.com (Joy Taylor) — Fri, 20 Feb 2026 12:45:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at four questions on whether you can claim your elderly parent as a dependent on your tax return and more. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Claiming a parent as a dependent

Question: I care for my elderly mom. Can I claim her as a dependent on my 2025 Form 1040?

Joy Taylor: You must meet two rules to claim your mom as a dependent on your federal tax return. First, you must provide over half of her support. Second, your mom's gross income from taxable sources can’t exceed $5,200 for 2025 tax returns (the amount is $5,300 for 2026). If your mom receives Social Security benefits, only the taxable portion of the benefits is included for this purpose. Your mom does not need to live with you for you to be able to claim her as a dependent.

If you meet the tests, you can claim the $500 credit for other dependents on your 2025 Form 1040. However, there is an income limit. The credit begins to phase out when your adjusted gross income (AGI) exceeds $200,000 ($400,000 for married filing jointly).

2. Claiming the dependent care credit for a parent

Question: I work and also take care of my elderly father. I pay for his care when I am at work. Can I take the dependent care credit for him?

Joy Taylor: The rules to claim the dependent care credit for an elderly parent are a bit more stringent than the rules for claiming the parent as a dependent. The $5,200 income test doesn’t apply, but the parent needs to have lived with you for at least six months during the year and be unable to care for themselves.

Other rules for the dependent credit must also be met. For example, expenses for the care must be incurred so you can work, and you must report the provider’s tax ID number on IRS Form 2441.

If your dad qualifies as a dependent for this purpose, you can claim a maximum dependent care credit of $1,050 for him on your 2025 Form 1040, depending on the amount of your income. Beginning this year, meaning for 2026 tax returns that you file next year, the maximum dependent care credit increases to $1,500 for one dependent.

3. Medical costs of an elderly parent

Question: My dad is 85 years old and has lots of medical issues. He doesn't live with me, but I pay all of his doctors' bills and other out-of-pocket costs that Medicare doesn't cover. Can I deduct those medical expenses if I itemize on Schedule A of Form 1040?

Joy Taylor: Taxpayers who itemize on Schedule A can deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of AGI. You can claim medical expenses that are not reimbursed by insurance for yourself, your spouse and your dependents. If your dad qualifies as your dependent, then you can deduct his eligible medical expenses that you pay for, subject to the 7.5%-of-AGI rule. Note that for purposes of the medical expense deduction, your dad can have income from taxable sources that exceeds $5,200 for 2025 ($5,300 for 2026).

4. Driving a parent to doctors' appointments

Question: I live in New Jersey, and my elderly mom, who has dementia, lives in Brooklyn in New York City. My mom has Medicare and Medicaid; however, I help out with her medical costs whenever I can and drive her to the doctor's office. Can I deduct the cost of taking my mom to all of her medical appointments?

Joy Taylor: It depends on whether your mom qualifies as your dependent for tax purposes (with the exception of the $5,200 taxable income requirement). If your mom does qualify as your dependent, then you should be able to deduct the cost of transporting her to her appointments and various other medical costs that you pay for as a medical expense on your Form 1040. Note, you must itemize on Schedule A and medical expenses are deductible only to the extent that total medical expenses exceed 7.5% of AGI.

You can use the IRS's standard mileage rates for medical driving. For 2025, the rate is 21 cents per mile. For 2026, it's 20.5 cents per mile. It seems that you would be able to deduct only the mileage from your mom's place to her doctors' offices. I don't think the cost of you driving from your home to your mom's place and vice versa qualifies as deductible medical transportation.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, February 13: More Questions on IRAs

joy.taylor@futurenet.com (Joy Taylor) — Fri, 13 Feb 2026 13:00:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at four questions on inherited IRAs, Roth conversions and more. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Inherited IRA

Question: My son inherited his younger brother's Roth IRA in 2009 when he passed away. Did he need to clean out that IRA within 10 years?

Joy Taylor: No, your son did not need to clean out the inherited IRA within 10 years. The 10-year rule applies only to certain IRAs inherited after 2019. The rule also doesn't apply when the beneficiary is older than the decedent. The exception is technically for beneficiaries who are not more than 10 years younger than the decedent and that would include an older beneficiary.

2. Roth conversions

Question: I'm planning on converting a portion of my traditional IRA to a Roth IRA this year. Do I have to first withdraw my annual required minimum distribution (RMD) before doing the conversion?

Joy Taylor: Yes. People of RMD age who are planning a Roth IRA conversion must first take their full annual RMD for the year before doing the conversion.

For people with multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs. (Note that this doesn’t include RMDs from 401(k)s or other workplace retirement plans.)

3. MLP investments in IRAs

Question: I have a traditional IRA. Can my IRA invest in shares of master limited partnerships (MLPs)?

Joy Taylor: Yes, and these types of investments are popular among certain IRA owners. But be wary of MLPs because of the potential unrelated business taxable income (UBTI) issues.

MLPs issue Schedule K-1s to their owners (including IRAs), reporting the owner’s share of ordinary business income or loss. For IRAs, this income is generally considered UBTI, and the IRA may owe tax. If UBTI from all of an IRA’s investments exceeds $1,000, then the excess is taxed at a rate of up to 37%. The IRA, not the individual owner, uses Form 990-T to report and compute the tax, which is paid from available assets within that IRA. Most big IRA custodians handle the preparation and filing of the 990-T. For self-directed IRAs, the burden of filing the 990-T would fall on the IRA owner.

I would speak with your financial advisor and a CPA before making any such investments. I'm not saying they are bad investments for IRAs — many people have MLPs in their IRAs. I'm just saying you should understand all of the potential consequences that might arise before you put such interests in your IRA.

4. QCDs

Question: I am 74 and still working. I have a traditional IRA and a Roth IRA. I currently contribute to my Roth IRA. Can I do a qualified charitable distribution (QCD) from my traditional IRA this year?

Joy Taylor: Yes. For 2026, IRA owners who are 70½ or older can transfer up to $111,000 from their traditional IRAs directly to charity. QCDs count as part of one's RMD, but they are not taxable and they're not included in adjusted gross income. QCDs aren't deductible as a charitable contribution on Schedule A of Form 1040.

A special rule applies for people who make deductible IRA contributions after 70½. Essentially, these post-70½ contributions reduce one's allowable tax-free QCD amounts until they are used up. Contributions to a Roth IRA are not deductible, so post-70½ contributions to a Roth IRA will not impact your ability to do a QCD.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, February 6: Questions on Federal Income Tax Deductions

joy.taylor@futurenet.com (Joy Taylor) — Fri, 06 Feb 2026 11:30:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on the whether moving expenses and more are tax-deductible. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Moving expense deduction

Question: Can I deduct moving expenses on my 2025 Form 1040? I'm talking about the cost of the moving van, mileage, food, lodging, etc.

Joy Taylor: Unfortunately, moving expenses are generally not deductible. It used to be that when you relocated for a new job, you could deduct the cost of your move on Form 1040. The 2017 Tax Cuts and Jobs Act temporarily eliminated the write-off from 2018 through 2025. And the One Big Beautiful Bill that lawmakers enacted in July 2025 made this repeal permanent.

There is one exception. Active-duty military personnel who move pursuant to military orders can still deduct their moving costs.

2. Interest write-off

Question: Rather than obtaining a mortgage when I bought my primary home last year, I borrowed against my investment securities at my brokerage firm with the intention of paying off a portion of the borrowed funds within a year or a bit more. I paid monthly interest on the borrowed funds until I paid off the debt after 15 months. Is the interest on the borrowed funds tax-deductible as home mortgage interest?

Joy Taylor: I don't think you would be able to take a federal tax deduction for the interest on the borrowed funds unless your home secured the loan. According to the IRS in Publication 936, Home Mortgage Interest Deduction:

"Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, or a second mortgage."

The IRS goes on to say: "Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements."

You said you borrowed against your securities. That makes it sound to me that your home didn't secure the loan. As a result, I don't think the interest qualifies as home mortgage interest.

Individual taxpayers can also deduct investment interest in certain cases. But again, I don't think your situation would qualify. That's because you didn't use the proceeds from the loan to acquire investment property. The tax rules allow, subject to limitations, a deduction for investment interest for people who borrow money to buy property held for investment. Here is how the IRS defines investment property for this purpose in Publication 550, Investment Income and Expenses:

"Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity)."

Unfortunately, a personal residence generally is not investment property for this purpose.

3. Senior deduction

Question: What is the $6,000 write-off for filers age 65 and older? Can you furnish me with detailed information?

Joy Taylor: The One Big Beautiful Bill that federal lawmakers enacted last July includes various tax changes for individuals. One of them is the $6,000 senior deduction. This write-off is for taxpayers who are 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. The deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A. The deduction is temporary, first taking effect on 2025 tax returns filed this year and ending after 2028.

Not every senior will qualify for the deduction. It begins to phase out at modified adjusted gross income (AGI) above $150,000 on joint returns and $75,000 on other returns. It is fully phased out once modified AGI reaches $250,000 for joint filers and $175,000 for others. Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain income excluded from gross income because it was received from sources in Puerto Rico, American Samoa, Guam and the Northern Mariana Islands.

Each filer 65 and older must have a Social Security number to claim this tax deduction. And if married, you must file a joint return to claim the deduction.

Taxpayers who qualify for the $6,000 senior deduction use the new IRS Schedule 1-A to claim it. Fill out Part I of Schedule 1-A to calculate your modified AGI, and then complete Parts V and VI. Transfer the amount on line 38 of Schedule 1-A to line 13b of the 2025 Form 1040 (or line 13c of the 2025 Form 1040-SR). You can find the instructions for this Schedule in the Form 1040 instructions.

4. No deduction for gifts

Question: I gifted $5,000 to each of my grandchildren last year. Where do I deduct the gift on my federal tax return?

Joy Taylor: Gifts are not deductible to the donor for federal income tax purposes. So you can't deduct the gifts to your grandchildren on your Form 1040. The gifts are also not taxable to your grandchildren.

5. Charitable contribution deduction

Question: I donated publicly traded securities to a tax-exempt charity. The charity gave me a letter acknowledging the donation and describing what I gave, but didn't indicate the value of the contribution. Is this correct?

Joy Taylor: The charity is correct. The written acknowledgment letter that a charity gives you when you make a donation only includes the amount of a cash contribution. If you make a non-cash contribution, the letter is only required to provide the description of the contribution, but not the value.

For a donation of publicly traded securities, including shares in mutual funds, your charitable contribution amount is the fair market value of the securities on the date of the donation. The fair market value of the donation is the average between the highest and lowest quoted selling price on the date of the contribution.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, January 30: Questions on Social Security Benefits Taxation

joy.taylor@futurenet.com (Joy Taylor) — Fri, 30 Jan 2026 12:50:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at six questions on the taxation of Social Security benefits. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

Question: I am retired and receive monthly Social Security benefits. I heard they are now fully tax-free for federal income tax purposes. Is that correct?

Joy Taylor: Unfortunately, no. President Trump promised to make the benefits fully tax-free. But the complex process that Republican lawmakers in Congress used to pass the "One Big Beautiful Bill" last July didn't allow for this change.

Question: I receive monthly Social Security benefits. How much of the benefits will be taxed when I file my 2025 Form 1040?

Joy Taylor: It depends on whether you file a single return or a joint return and on the amount of your provisional income. Provisional income is generally equal to the combined total of (1) tax-exempt interest, (2) 50% of your Social Security benefits and (3) other non-Social Security income items that make up your adjusted gross income, minus certain deductions and exclusions.

For single filers, if provisional income is less than $25,000, then the full amount of Social Security benefits are tax-free. If provisional income is between $25,000 and $34,000, then up to 50% of the benefits is taxable. If provisional income is over $34,000, then up to 85% of the benefits is taxed.

For joint filers, if provisional income is less than $32,000, then the Social Security benefits are fully tax-free. If provisional income is between $32,000 and $44,000, then up to 50% of the benefits is taxable. If provisional income is over $44,000, then up to 85% of the benefits is taxed.

3. Why are the provisional income figures so low?

Question: I have been receiving Social Security benefits for many years. I noticed while figuring the tax on my benefits that the $25,000, $34,000, $32,000 and $44,000 provisional income thresholds never change. Why is that?

Joy Taylor: Many tax breaks and income levels are indexed to inflation each year. But not the provisional income thresholds for taxing Social Security benefits. For decades, they have stayed static at $25,000, $34,000, $32,000 and $44,000. Democrats have proposed bills over the years to raise the thresholds, but they never pass. That’s because the bills also include payroll tax hikes on upper-incomers, which make the bills a nonstarter with Republicans.

4. How do I calculate taxable benefits when I have Medicare premiums taken out?

Question: I am retired and receive Social Security benefits. I have my monthly Part B Medicare premiums paid from my Social Security benefits, thus lowering the amount of benefits I receive each month. Which figure do I use to determine the amount of my Social Security benefits that might be subject to federal tax?

Joy Taylor: You are not alone. Most Social Security beneficiaries have their Medicare premiums deducted from their monthly Social Security checks. To calculate the amount of Social Security benefits for federal income tax purposes, you would use the amount prior to the reduction for Medicare premiums. You can find this number in box 5 of the Form SSA-1099 that you receive.

Question: I live in Virginia and I just started receiving Social Security benefits last year. I know I have to pay federal tax on the benefits, but how does Virginia tax them?

Joy Taylor: Most states, including Virginia, exempt Social Security benefits from state income tax. But not all do. The eight outliers that tax all or part of the benefits are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont. Many of these states have exceptions based on income figures.

See States That Tax Social Security Benefits in 2026

Question: I want to have federal income tax withheld from my Social Security benefits. How do I request this?

Answer: Fill out Form W-4V to voluntarily request that federal tax be withheld from your Social Security benefits, and mail it to your local Social Security office or drop it off in person. You can elect to have 7%, 10%, 12% or 22% of your monthly Social Security benefits taken out.

Alternatively, if you have an online Social Security account, you can request changes to your withholding at: https://www.ssa.gov/manage-benefits/request-withhold-taxes

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Tax Editor, January 23: Questions on Residential Rental Property

joy.taylor@futurenet.com (Joy Taylor) — Fri, 23 Jan 2026 12:50:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on reporting income and loss from residential rental property. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Can I deduct interest paid on a HELOC?

Question: I own a rental home that I lease to a tenant. Every year, I attach Schedule E to my Form 1040 to report the income or loss from the property. I have a mortgage on the property and deduct the interest I pay on Schedule E. Last year, I took out a home equity line of credit (HELOC) on the house. In addition to deducting the interest I pay on the primary mortgage, can I also deduct the interest that I pay on the HELOC?

Joy Taylor: It appears that you can deduct interest paid on the HELOC on Schedule E if you used the HELOC proceeds for use in your rental activity. For example, if you used the HELOC proceeds to renovate or improve the home, you can deduct the interest on Schedule E. If you used the HELOC proceeds for other purposes not related to your rental activity, then the interest is not deductible. If you used the proceeds for mixed use (a portion for rental property improvements and a portion for personal use), then you'll need to trace the interest to how the proceeds were used. Here is language from the IRS's Schedule E instructions.

"In most cases, to determine the interest expense allocable to your rental activities, you must have records to show how the proceeds of each debt were used. Specific tracing rules apply for allocating debt proceeds and repayment. In general, you allocate interest on a loan the same way you allocate the loan proceeds. You allocate loan proceeds by tracing disbursements to specific uses."

2. Do landlords qualify for the QBI deduction?

Question: I own rental property and generate a profit from the activity. Can I claim a 20% qualified business income (QBI) deduction for my rental income that I report on Schedule E of my Form 1040?

Joy Taylor: It depends. Self-employed individuals and owners of LLCs, partnerships, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with incomes in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers. (For 2026, these figures are $403,500 for joint filers and $201,750 for others.)

Rental income reported on Schedule E of the Form 1040 may be eligible for the deduction in certain cases. There are two ways to qualify for the 20% QBI write-off for rental income. The first is whether the rental activity rises to the level of a trade or business. For this purpose, the IRS’s regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses.

There is no statutory or regulatory definition of a Section 162 trade or business. Instead, this is based on each taxpayer’s specific facts and circumstances. Some relevant factors are the type of property (commercial or residential), lease terms, extent of day-to-day involvement by the lessor or his or her agents, the significance and type of ancillary services provided under the lease, and the number of rentals.

A second way to qualify rental income as QBI is to meet an IRS safe harbor. At least 250 hours in a year must be devoted to the rental activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases, tenant services, property management, advertising and supervising workers counts. Hours put in for driving to and from the property, arranging financing and constructing long-term capital improvements on the property aren’t included. If you own multiple properties, you can treat each property separately or aggregate similar rental activities into commercial or residential categories.

Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Contemporaneous records must detail hours, dates and descriptions of the services and who performed them. If the services are done by contractors or employees, the taxpayer must keep logs of the work done by them, as well as proof of payment.

Note that the safe harbor doesn’t apply to rental income from property leased under a triple net lease or if the owner’s personal use of residential property exceeds the greater of 14 days or 10% of the days rented.

Treating rental income as QBI doesn’t change how you report that income on your Form 1040. Real estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax.

Read more questions on QBI answered by Joy.

3. Can I deduct travel expenses on Schedule E?

Question: I owned a rental home for 25 years that I sold last year. Over the last 25 years, I made two visits per year to the property to do maintenance on it. For example, I upgraded the landscape, trimmed the grass, and did other small things. Can the cost of these trips be added to my home's tax basis in calculating my gain on the sale? Or can I otherwise now deduct those travel costs?

Joy Taylor: IRS Publication 527, Residential Rental Property, says this about travel expenses to and from rental properties that you own:

"Travel expenses. You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. You must properly allocate your expenses between rental and non-rental activities. You can’t deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. The cost of improvements is recovered by taking depreciation."

Since your trips to the rental property were for maintenance, and not to substantially improve the property, you should have deducted mileage and/or other travel expenses on your tax returns for the years of the visits. The amounts cannot now be added to the basis of your property.

4. What are the tax consequence when I sell?

Question: I plan to sell a rental home that I have owned for many years. I'm sure I will have a gain from the property. How will that gain be taxed on my federal income tax return?

Joy Taylor: If you hold rental property, the gain or loss when you sell is generally characterized as a capital gain or loss. If the property was held for more than one year, it's a long-term capital gain or loss, and if held for one year or less, it's a short-term capital gain or loss.

The gain or loss is the difference between the amount realized on the sale and your tax basis in the property.

The capital gain will generally be taxed at 0%, 15%, or 20%, plus the 3.8% net investment income tax for people with higher incomes. However, a special rule applies to gain on the sale of rental property for which you took depreciation deductions. When depreciable real property held for more than one year is sold at a gain, the federal tax law requires that previously deducted depreciation be recaptured into income and taxed at a top rate of 25%. This is known as unrecaptured Section 1250 gain, the number of its federal tax code section.

5. How is rental income taxed?

Question: I just bought a home that I am going to rent out to tenants. How is the rental income I receive taxed? Is it ordinary income or capital gain?

Joy Taylor: Rental income from real estate that you rent out is taxed at ordinary income tax rates, which vary depending on your taxable income. If you eventually sell the rental property at a gain, then that gain is generally treated as capital gain.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, January 16: Tips for Filing Your Form 1040

joy.taylor@futurenet.com (Joy Taylor) — Fri, 16 Jan 2026 14:30:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at four questions on preparing and filing your 2025 Form 1040. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Any tips for getting my refund faster?

Question: I am generally due a refund when I file my tax return. Do you have any tips on how I can get my tax refund faster?

Joy Taylor: The fastest way to get your tax refund is to file your tax return early, file it electronically, and request that the money be deposited directly into your bank account.

E-filing your tax return early can also help protect you from tax-related identity theft. Thieves who use stolen taxpayer identification numbers on fraudulent returns to seek improper refunds typically file the phony returns early in the filing season so that the IRS receives them before legitimate taxpayers file their returns. If you e-file your Form 1040 early, your return will likely arrive at the IRS before a fake return does.

2. Will my refund be delayed if I claim the earned income credit?

Question: For the past couple of years, I claimed the earned income tax credit on my Form 1040, and my refund was delayed. Will this happen again this year?

Joy Taylor: Yes. Filers claiming the earned income tax credit and taxpayers claiming the refundable child tax credit will have to wait, probably until at least late February, before their refunds are directly deposited into their bank accounts. The wait time will be longer for paper-filed returns sent by snail mail.

3. Do you expect a smooth tax filing season?

Question: I have read that many tax professionals are expecting a rough tax filing season this year. What are your thoughts on this issue?

Joy Taylor: The IRS says it will begin accepting tax returns on January 26. Some tax professionals thought that the filing season would be delayed because of all the work the IRS had to do to implement the tax changes in the "One Big Beautiful Bill" (the OBBB), many of which apply to 2025 federal tax returns. But instead, IRS employees worked diligently to open the filing season pretty much on time.

We generally expect a smooth filing season. But that doesn't mean there won't be some rough patches ahead, primarily caused by the IRS's diminished workforce. The IRS has lost 25% of its workers over the last 12 months. The departures represent all experience levels and functions within the IRS, including taxpayer service, collection, IT support and enforcement.

Taxpayers and tax preparers will have questions on how the OBBB changes apply in a wide range of scenarios, and they're not likely to get much assistance from the IRS. Yes, there will be people answering the phones at the agency, after a long wait. But getting answers to substantive tax questions is a bit of a pipe dream.

Taxpayers who file amended returns for prior years will likely be waiting a long time before the IRS processes their filings. That's because IRS employees will be laser-focused on processing 2025 tax returns.

Also, look for IRS responses and actions on taxpayer correspondence to be slower than normal. For example, if you're replying to an IRS automated letter or other IRS inquiry, it will probably take a long while before you hear back from anyone at the IRS. We expect the IRS will reassign some employees to answer the phone lines or assist with other filing season tasks. These workers' other duties will be put on hold.

4. Will tax refunds be bigger?

Question: I have heard in the news that many people expect tax refunds to be larger this year than in past years. What is the reason for this?

Joy Taylor: Experts are saying that this year's tax refunds will be bigger than in years past. You can thank the OBBB for this. Many of the new tax breaks for individuals in the OBBB begin in 2025, more specifically on the 2025 returns that taxpayers are filing this year. Here's a partial list of these tax breaks:

Higher standard deductions
Slightly higher child tax credits
The $6,000 write-off for filers age 65 or older ($12,000 on joint returns if both spouses are 65 or older)
The deduction for up to $25,000 of qualified tip income
The deduction for up to $12,500 of qualified overtime compensation ($25,000 on joint returns)
The deduction for up to $10,000 of interest paid on loans to buy a new vehicle for personal use
The larger $40,000 cap on deducting state and local taxes on Schedule A

We'll monitor the IRS's website over the filing season to see if this forecast for larger tax refunds pans out.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, January 9: How to Get Ready for Tax Filing Season

joy.taylor@futurenet.com (Joy Taylor) — Fri, 09 Jan 2026 12:35:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at four questions on the IRS tax filing season and your 2025 tax return. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. When can I file my 2025 tax return?

Question: When does IRS plan to open the 2026 tax filing season?

Joy Taylor: The IRS just announced that it will open the 2026 filing season on January 26. That's about a week later than some other years, likely because of the "One Big Beautiful Bill" (OBBB), which lawmakers passed last July.

The OBBB contains over 100 tax sections, with many of the changes taking effect on 2025 tax returns and others on 2026 tax returns. The IRS had a lot on its plate to implement the OBBB. It had to revise forms, instructions and publications, and the IRS's IT people needed to reprogram computer systems to account for all of these changes. The agency also released lots of guidance to implement many of the new tax changes. As of the date of this column, the IRS has released the final version of the 2025 Form 1040, but the instructions are still in draft form.

Last July, then-IRS Commissioner Billy Long said that the IRS was aiming to start the 2026 filing season around President's Day, which is about four weeks later than normal. The last time the filing season began in February was 2021, during the COVID-19 pandemic. Luckily, for taxpayers and the IRS, the agency didn't have to delay this year's filing season. Instead, the IRS will begin accepting 2025 tax returns on January 26.

2. How do I claim the $6,000 senior deduction?

Question: My wife and I are over age 65. I prepare our tax return each year. Where do I claim the new $6,000 senior deduction on the 2025 Form 1040?

Joy Taylor: There is now a new senior tax deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040. This deduction is temporary, first taking effect on 2025 tax returns filed this year, and ending after 2028.

Not every senior will qualify. The deduction begins to phase out at modified adjusted gross incomes (or modified AGIs) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers. Also, each eligible spouse must have a Social Security number to claim this write-off.

Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain income excluded from gross income because it was received from sources in Puerto Rico, American Samoa, Guam and the Northern Mariana Islands.

The IRS has released new Schedule 1-A for filers to claim the $6,000 senior deduction, as well as the up-to-$25,000 qualified tips deduction, the write-off for up to $12,500 of qualified overtime pay ($25,000 for joint filers), and the deduction for up to $10,000 of interest paid on loans to buy a new automobile.

To claim the senior deduction, you would fill out Part I of Schedule 1-A to calculate your modified AGI, and then complete Parts V and VI. You would then transfer the amount on line 38 of Schedule 1-A to line 13b of the 2025 Form 1040.

3. Will IRS send me a paper check for my tax refund?

Question: In past years when I filed my federal tax return, I always asked that the IRS send me my refund in the form of a paper check. I have a bank account, but I don't want to give the IRS my account information. I heard that the IRS is no longer issuing paper checks for tax refunds. Is that correct?

Joy Taylor: The IRS is phasing out paper refund checks to individuals to comply with an executive order from the White House. Tax refunds for individuals will generally be paid by direct deposit or some other electronic method.

According to the IRS's National Taxpayer Advocate, taxpayers who don’t provide bank account details or request an exemption will face delayed refunds. The IRS will send a letter to these filers, requesting the bank account information and providing directions on how to request an exemption from the rules. Taxpayers who receive the letter and don’t comply will see their refunds delayed for six weeks or more.

The IRS is encouraging people without bank accounts to open one as soon as possible.

4. Can I send a paper check if I owe taxes?

Question: If I owe taxes when I file my 2025 Form 1040, can I mail a paper check or do I have to give the IRS my bank information?

Joy Taylor: It appears that you can continue to pay your taxes with a paper check, for now. Although the IRS is urging filers to use alternative methods to pay their taxes, such as electronic payments and debit or credit cards, the IRS will still accept paper checks sent in the mail for tax payments.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, December 19: Itemized Deductions

joy.taylor@futurenet.com (Joy Taylor) — Fri, 19 Dec 2025 13:20:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week she's looking at five questions on itemized deductions claimed on Schedule A of Form 1040. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Valuation of donated publicly traded shares

Question: I am planning to donate shares in a publicly traded mutual fund to charity. What is the value of my donation for claiming a charitable contribution deduction on Schedule A of my Form 1040.

Joy Taylor: You would use the fair market value of the donated property on the day you donate your mutual fund shares. For charitable contributions of publicly traded stocks, bonds, mutual funds, etc., the fair market value of the donation is the average between the highest and lowest quoted selling price on the date of the contribution.

IRS Publication 561 has more information on determining the value of donated property.

2. Higher SALT deduction cap

Question: When does the $40,000 cap on deducting state and local taxes (SALT) kick in? Does it apply to my 2025 Form 1040 if I itemize on Schedule A?

Joy Taylor: The “One Big Beautiful Bill” (OBBB) increased the cap for the SALT deduction on Schedule A of the federal income tax return from $10,000 to $40,000 for five years (2025-2029). So the higher limit will apply to your 2025 federal return that you file in 2026, provided you itemize on Schedule A of Form 1040 or 1040-SR. The cap for married couples who file separate returns is $20,000 apiece for 2025-2029.

There is an income limit. For 2025, the SALT write-off begins to phase out, but not below $10,000, for filers with modified adjusted gross incomes (modified AGI) over $500,000 ($250,000 for married couples who file separate returns). Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion and certain income excluded from gross income because it was received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

By law, the $40,000 cap and $500,000 modified AGI threshold increase 1% each year through 2029. For 2026 returns filed in 2027, the SALT deduction cap will be $40,400 and the income limit at which the deduction will begin to phase out will be modified AGI over $505,000. After 2029, the SALT deduction cap falls back to $10,000, unless Congress acts.

3. Home office

Question: My employer instituted a hybrid work policy. Each week, I have to work three days in my employer’s office and two days at home. Can I claim a home office deduction if I itemize on Schedule A of the Form 1040?

Joy Taylor: No. Prior to 2018, certain employees could deduct the cost of home office expenses as unreimbursed employee costs included in Schedule A miscellaneous itemized deductions, subject to the 2%-of-AGI threshold. The 2017 Tax Cuts and Jobs Act (TCJA) repealed this group of tax breaks through the end of 2025, and the OBBB permanently repealed them. So no, employees cannot claim the home office deduction.

The home office deduction is still available to self-employed people or independent contractors who file Schedule C with their Form 1040 and use a room or space in their house or apartment exclusively and regularly as their principal place of business.

4. Investment management fees

Question: Did the OBBB bring back the itemized deduction for fees I pay to my broker to manage my personal investment accounts, including my retirement accounts?

Joy Taylor: Unfortunately, no. These types of investment expenses used to be deductible as miscellaneous itemized deductions on Schedule A of the Form 1040 (subject to the 2%-of-AGI limit). But the TCJA temporarily eliminated that entire group of deductions through 2025, and the OBBB has permanently ended them.

5. Medical Expenses

Question: Did the OBBB make any changes to the medical expense deduction on Schedule A?

Joy Taylor: No, the OBBB made no changes to the medical expense deduction. Only taxpayers who itemize on Schedule A can deduct medical expenses, and only to the extent that the total amount exceeds 7.5% of AGI.

You might be interested in a congressional bill introduced by Senator Josh Hawley (R-Mo.). His bill would let nonitemizers deduct up to $25,000 of medical expenses, and it would also get rid of the 7.5%-of-AGI haircut. It is too soon to know whether this proposal will gain any traction in Congress next year.

About Ask the Editor, Tax Edition

The Ask the Editor column is taking a two-week break for the holidays. We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups, beginning with our first column in 2026, which we will publish on January 9. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, December 12: IRAs, 401(k)s and RMDs

joy.taylor@futurenet.com (Joy Taylor) — Fri, 12 Dec 2025 13:40:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week she's looking at eight questions on IRAs, 401(k)s and required minimum distributions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. First RMD

Question: I turned 73 earlier this year, and I am retired. I know I must start taking required minimum distributions (RMD) from my traditional IRA. Can you explain the rules to me?

Joy Taylor: You are correct that people 73 and older must take annual RMDs from their traditional IRAs. (Note that starting in 2033, the beginning RMD age rises to 75.) To arrive at the RMD amount for 2025, you would start with your IRA balances as of December 31, 2024, and divide each one by the factor for your age, which you find in the tables in IRS Publication 590-B. The sum of the required withdrawal amounts can be taken from any IRA that you choose.

Generally, IRA owners must take their annual RMD by the end of the year. However, since 2025 is your first RMD year, you have until April 1, 2026, to take your 2025 RMD.

If you opt to defer your first RMD to 2026, be sure you understand the consequences. You will be taxed in 2026 on two RMDs – the deferred one for 2025 and the RMD for 2026. This will end up increasing your adjusted gross income and taxable income in 2026. Note also that if you choose to defer your 2025 RMD, the deferred 2025 RMD amount will still be based on your total IRA balance as of December 31, 2024.

2. RMDs and traditional 401(k) accounts

Question: I am 73 years old and am still working. I don’t have an IRA, but I have two 401(k)s, one from a previous employer and one from my current employer. Do I have to take RMDs from these accounts for 2025?

Joy Taylor: Similar to owners of traditional IRAs, participants in traditional 401(k) workplace retirement plans must generally take RMDs, beginning at age 73. For people with multiple 401(k)s, the RMD must be taken from each 401(k) account. However, there is an exception in your case, since you are still working. You can generally delay taking an RMD from your current employer’s 401(k) until you retire, provided you don’t own more than 5% of the company that employs you. This exception doesn’t apply to 401(k) accounts with previous employers, so you will have to take your 2025 RMD from your 401(k) account with your previous employer.

Since 2025 is your first RMD year, you have until April 1, 2026, to take the RMD from your 401(k) account at your previous employer. If you opt to defer your first RMD to 2026, be sure you understand the tax consequences. You will be taxed in 2026 on two RMDs – the deferred one for 2025 and the RMD for 2026. This will end up increasing your adjusted gross income and taxable income in 2026.

3. Roth IRAs and 401(k)s

Question: Must RMDs be taken from Roth IRAs?

Joy Taylor: No, Roth IRA owners do not need to take RMDs. The same applies for owners of Roth 401(k) accounts. This is one of the benefits of investing in Roths.

4. RMDs for 2026

Question: I understand that I would use the balances in my traditional IRAs as of December 31, 2025, to figure my RMD amount for 2026. A significant portion of my IRA investments is in equities. What happens if the stock market tanks in 2026? Will the IRS eliminate RMDs for 2026 if this happens?

Joy Taylor: I can’t answer this question at this time. First, it is Congress, not the IRS, which must act to waive the RMD for any particular year. For example, Congress waived RMDs for 2020 soon after the COVID-19 pandemic started. Congress also waived RMDs for 2009 because of the economic recession. If the stock market falls precipitously next year and remains low for a while, then maybe there could be RMD relief, but this is just speculation.

5. RMDs and inherited traditional IRAs

Question: I just inherited a traditional IRA from my aunt, who died earlier this year at age 78. I know that I must clean out the IRA within 10 years, but do I also have to take an annual RMD from the IRA?

Joy Taylor: The answer is likely yes. For most nonspousal IRAs inherited after 2019, the IRA funds must be distributed to the beneficiary within 10 years of the owner’s death. Since your aunt died this year, you must clean out the IRA no later than December 31, 2035. There are exceptions for beneficiaries who are surviving spouses or minor children (until age 21) of the account owner, chronically ill or disabled, or not more than 10 years younger than the deceased IRA owner.

If the original IRA owner dies before his or her RMD date begins, and the beneficiary is subject to the 10-year clean-out rule, then the beneficiary needn’t take a minimum distribution each year. The beneficiary can immediately cash out, opt to wait until year 10 to get the money, get yearly distributions, or skip years, provided the IRA is fully depleted by the end of the 10-year period.

However, in your case, your aunt died after her RMD start date. Because of this, you must withdraw, at a minimum, annual RMDs from your inherited IRA during the 10-year period, generally beginning in 2026 (the year after your aunt’s death), and then fully deplete the IRA by year 10 at the latest. You would calculate your annual RMD based on your life expectancy and not that of your aunt.

6. RMDs and inherited Roth IRAs

Question: How does the 10-year clean-out rule apply to inherited Roth IRAs? Must RMDs be taken from inherited Roth IRAs?

Joy Taylor: Similar to the rules for traditional IRAs, many nonspousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death. But the money is generally tax-free to them. Also, because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roths needn’t worry about whether the original Roth account owner died before or after the starting date for taking RMDs. These beneficiaries don't need to take annual RMDs. They can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years or get annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

7. RMDs and QCDs

Question: I have a traditional IRA, and I am currently taking annual RMDs. I am charitably inclined, and my financial advisor told me that if I make a qualified charitable distribution (QCD) from my IRA, then it will count against my taxable RMD. Is this true?

Joy Taylor: People age 70½ and older can transfer up to $108,000 in 2025 ($111,000 in 2026) from a traditional IRA directly to charity. A QCD can count as all or part of your RMD, provided you do it before taking your RMD for the year. QCDs are not taxable, and they are not added to your adjusted gross income or your modified adjusted gross income. Note that QCDs cannot be done from a 401(k) or other workplace retirement plan.

8. RMDs and Roth IRA conversions

Question: I am 74 years old, and I want to convert a portion of my traditional IRA to a Roth IRA next year. Must I take my full 2026 RMD from my traditional IRA before doing the conversion, even if I do the Roth conversion in early 2026?

Joy Taylor: Yes. Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth conversion must first take their full annual RMD for the year before doing the conversion. So if you plan to do a Roth conversion in 2026, you must first withdraw your full 2026 RMD from your traditional IRA before you do the conversion.

If you have multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs. For example, say you own three traditional IRAs, and your 2026 aggregate RMD from those three IRAs will be $73,612. If you want to do a Roth conversion from any of your traditional IRAs in 2026, you must first take your 2026 aggregate RMD of $73,612 from any of your traditional IRAs that you choose and then do the Roth conversion for the year.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, December 5: Capital Gains and Tax Planning

joy.taylor@futurenet.com (Joy Taylor) — Fri, 05 Dec 2025 13:05:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week she's looking at six questions on capital gains tax rates and end-of-year tax planning. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Capital gains and the OBBB

Question: Did the “One Big Beautiful Bill” (OBBB) make any changes to the existing federal income tax rates on capital gains?

Joy Taylor: No. Although the OBBB, which was enacted on July 4, 2025, has over 100 tax sections, there are no big changes to the taxation of capital gains. Some Republican lawmakers and free-market groups backed the idea of indexing capital gains to inflation each year, but this didn’t make it into the law. Others wanted a 15% top federal capital gains tax rate. But this proposal was also not included.

2. Tax rates on capital gains

Question: What are the federal income tax rates for capital gains for 2025 and 2026

Joy Taylor: Long-term capital gains, which are profits from the sale or exchange of capital assets held for more than a year, get favorable federal tax rates. They are generally taxed at 0%, 15% or 20%. The rates are based on set income thresholds, which are adjusted annually for inflation. Note that these same favorable rates also apply to qualified dividends. Here are the income thresholds for 2025:

The 0% rate applies at taxable incomes up to $48,350 for single filers, $64,750 for head-of-household filers and $96,700 for joint filers.
The 20% rate starts at $533,401 for single filers, $556,701 for head-of-household filers and $600,051 for joint filers.
The 15% rate is for filers with taxable incomes between the 0% and 20% break points.

Here are the income thresholds for 2026 tax returns that you would file in 2027:

The 0% rate applies at taxable incomes up to $49,450 for single filers, $66,200 for head-of-household filers and $98,900 for joint filers.
The 20% rate starts at $545,501 for single filers, $579,601 for head-of-household filers and $613,701 for joint filers.
The 15% rate is for filers with taxable incomes between the 0% and 20% break points.

Though most long-term capital gains are taxed at the 0%, 15% or 20% rates, there are a couple of exceptions. Long-term capital gains from the sale of art, antiques, coins, historical documents and other collectibles have a 28% top rate. Depreciation recapture from real estate sales is taxed at as much as 25%.

Short-term capital gains, which are profits from the sale or exchange of capital assets held for 12 months or less, are taxed at ordinary income rates up to 37%.

3. Stock mutual funds and capital gains distributions

Question: I invest in stock mutual funds. Every year, I pay a lot of tax on capital gains distributions from these funds at ordinary income tax rates. I’m told by my accountant that this income doesn’t qualify for the lower tax rates on long-term capital gains. Why is this the case?

Joy Taylor: As briefly mentioned in question 2, net short-term capital gains are taxed at ordinary income rates up to 37%. This applies to gains from the sale or exchange of capital assets held for a year or less, which can include capital gains distributions from stock mutual funds. Some of these funds frequently buy or sell holdings that can potentially generate big short-term capital gains distributions.

Before you invest in a stock mutual fund, check its turnover ratio. The higher the ratio, the higher the potential for tax-inefficient short-term capital gains distributions. One way around this hazard is to keep high-turnover stock mutual funds in an IRA or another tax-deferred account instead of in a taxable investment account.

4. Capital gains and state taxes

Question: Do all states tax capital gains in the same manner as the IRS?

Joy Taylor: No. Assuming your state will follow the federal tax treatment of capital gains is a mistake. Some states don’t have favorable capital gains rates, instead taxing investment income at the same rates as wages and ordinary income. A few states have preferential tax rates. And a handful don’t even tax capital gains at all. So be sure to understand your state’s tax treatment of capital gains.

5. Capital gains and the 3.8% NII tax

Question: I sold lots of investments this year for large gains. Will I have to pay the extra 3.8% surtax on top of the regular federal income taxes on my capital gains?

Joy Taylor: Maybe. The additional 3.8% net investment income tax (NII) applies to single filers with modified adjusted gross income (AGI) over $200,000 and to joint filers with modified AGI above $250,000. The modified AGI threshold is $125,000 for married people filing separate tax returns. Trusts and estates can also be hit with the NII tax if their 2025 modified AGI exceeds $15,900 and they have undistributed net income. These modified AGI amounts aren’t inflation-indexed, leading to more filers paying the NII tax each year.

Here are a few ways to keep the NII tax at bay: Invest in municipal bonds, which generate tax-free interest income for federal tax purposes. If possible, use an installment sale to spread out a large capital gain over several years. Also, try to keep your modified AGI below the $250,000/$200,000 thresholds so that the 3.8% NII tax won’t even kick in.

6. 0% rate on long-term capital gains

Question: I know there is a 0% rate on long-term capital gains and dividends. But how does one qualify for this rate, and is there anything I should be wary of?

Answer: For 2025, if taxable income other than long-term capital gains and dividends doesn’t exceed $48,350 for single-filed returns, $64,750 on head-of-household returns or $96,700 on joint returns, then qualified dividends and profits on sales of assets owned more than a year are taxed at a 0% federal income tax rate until they push you over the threshold amounts.

These income figures are a bit higher for 2026 tax returns that you would file in 2027, since they are adjusted annually for inflation. For 2026, they are $49,450 for single filers, $66,200 for head-of-household filers and $98,900 for joint filers.

Note that although these 0%-rate capital gains might not be taxed at the federal level, they do increase your adjusted gross income. Also, capital gains may be taxed differently at the state level. For example, some states tax capital gain as ordinary income.

Here are three scenarios to help illustrate the 0%-rate rule. In all three scenarios, you have a married couple with $18,000 of qualified dividends and long-term capital gains in 2025, which are included in the taxable income amounts.

In the first scenario, the couple has $77,000 of taxable income. The full $18,000 of long-term capital gains and dividends is taxed at the 0% rate. In the second scenario, the couple has $104,000 of taxable income. $10,700 of the long-term capital gains and dividends ($96,700 - ($104,000 - $18,000)) gets the favorable 0% tax rate, and $7,300 is taxed at the 15% rate. In the third scenario, the couple has $120,000 of taxable income. The 0% rate doesn’t apply, and the full $18,000 of long-term capital gains and dividends is taxed at 15%.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, November 28: Roth Conversions and Tax Planning

joy.taylor@futurenet.com (Joy Taylor) — Fri, 28 Nov 2025 13:24:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. In the Ask the Editor August 8 column, she answered five questions on Roth IRA conversions. This week, she’s looking at six more questions on the topic. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Annual limits on Roth IRA contributions

Question: I am thinking of doing a Roth IRA conversion for 2025, but my income is above the limit for making annual Roth IRA contributions. Can I still do a conversion?

Joy Taylor: Yes. Although there are income limitations for making regular, annual contributions to Roth IRAs, those income limitations do not apply to Roth conversions. Even if you cannot make an annual $7,000 ($8,000 for people 50 and older) Roth IRA contribution for 2025 because your income is too high, you can still transfer money from your traditional IRA to your Roth IRA in a Roth conversion. There is no limit on the amount of funds you can convert.

2. Taking the annual RMD and married couples

Question: I am 74 years old. I understand that if I want to transfer some funds from my traditional IRA to my Roth IRA in a Roth conversion, I must first take my total aggregate annual required minimum distribution (RMD) from my traditional IRA before I do the Roth conversion. My husband and I file joint tax returns, and he also has a traditional IRA. Does he have to take his full annual RMD before I can do a Roth conversion for the year?

Joy Taylor: Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth IRA conversion must first take their full annual RMD for the year before doing the conversion.

Since IRAs are individual accounts, only you must take your full required RMD for the year before converting any part of your traditional IRA into a Roth IRA. It’s OK if your husband waits until later in the year to take his annual RMD from his traditional IRA. That won’t have any impact on your Roth conversion for the year.

3. Rollover IRAs and Roth Conversions

Question: I am 63 and retired, and I want to do Roth conversions over the coming years. I have an existing Roth IRA. I also have a rollover IRA to which I had previously rolled over all the funds in my 401(k) account shortly after I retired. Can I do Roth conversions from my rollover IRA to my Roth IRA, or do I have to convert my rollover IRA to a traditional IRA first and then do the conversions?

Joy Taylor: You can do a Roth conversion from a rollover IRA to a Roth IRA. The income tax consequences should be the same as doing a Roth conversion from a traditional IRA.

4. SIMPLE IRA and SEP IRA

Question: Can a Roth IRA conversion be done from a SIMPLE IRA or SEP IRA?

Joy Taylor: Yes, you can transfer funds from a SIMPLE IRA or a SEP IRA to a Roth IRA, and the tax consequences should be the same as if you did the Roth IRA conversion from a traditional IRA.

5. Converting entire traditional IRA vs. a portion

Question: Can I transfer only a portion of my traditional IRA to a Roth IRA in a Roth conversion, or must I transfer all my traditional IRA funds in one swoop?

Joy Taylor: In a Roth conversion, you can convert all or a portion of your traditional IRA to the Roth. And in fact, many personal finance professionals advise to space out the Roth conversions by converting a portion of their traditional IRA each year. That way, you minimize the income tax impact on each conversion, thereby allowing you to manage your adjusted gross income (AGI) or modified AGI in the conversion years. This helps if you are of Medicare age and are trying to avoid Parts B and D Medicare premium surcharges on top of your regular monthly premiums. It also helps if you are trying to qualify for tax deductions or credits that have AGI phaseouts.

There are many factors to consider before doing a Roth conversion. I would suggest you talk with your IRA custodian or other personal finance professional before making any moves.

6. Five-year rules for Roth IRAs

Question: I know there is a five-year rule for withdrawing money tax-free from a Roth IRA. Can you explain the rule? When does the five-year rule start?

Answer: There are actually two five-year rules that apply to Roth IRAs. The first applies to Roth IRA contributions, including rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the owner first contributed to a Roth IRA.

For this first five-year rule, the five-year clock starts the first time that money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t start for later Roth contributions, conversions or for newly opened Roth IRA accounts.

This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pre-tax income from traditional IRAs to Roths. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period.

Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above. For instance, if you do multiple Roth IRA conversions, there will be multiple five-year time periods, even if each conversion is done into the same Roth IRA account that you have owned for years.

For more information on the two Roth IRA five-year rules, see what to know about the five-year rules for Roth IRAs.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, November 21: Home Sale Tax Break

joy.taylor@futurenet.com (Joy Taylor) — Fri, 21 Nov 2025 12:33:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she's looking at five questions on the gain exclusion tax break when you sell your home. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Will my home sale be taxed?

Question: My husband and I are thinking of selling our home next year that we have owned for many years. Will the gain be taxed?

Joy Taylor: It depends. Generally, if you have owned and lived in your main home for at least two out of the five years before the sale date, up to $250,000 ($500,000 for joint filers) of your gain when you sell the home is tax-free. Any gain above the $250,000/$500,000 exclusion amounts is taxed at long-term capital gains rates of 0%, 15% or 20%, depending on the amount of your taxable income. Losses from sales of primary homes are not deductible.

Here are a couple of examples to illustrate the rule. Say you bought your home in 1995, have a tax basis of $250,000, and are selling the home for $650,000. The entire $400,000 gain is tax-free since you are filing a joint return. Let's now take the same example, but instead of selling the home for $650,000, you sell it for $900,000. Since you are married and, provided you file a joint return, the first $500,000 of the gain is tax-free, and the remaining $150,000 is taxed at long-term capital gains rates.

2. What if I change jobs and sell my home early?

Question: I am married, and I bought my home 14 months ago. My company is relocating, and I must move out of state for work. I plan to sell the home next month. Can I exclude any gain from the home sale?

Joy Taylor: In your case, you don't meet the two-out-of-five-year ownership and use periods to qualify for the full $500,000 gain exclusion for joint filers. However, you are not out of luck. Some people who sell a home early may still be eligible for a portion of the exclusion, depending on the circumstances.

For example, early sales due to job changes, illness or unforeseen circumstances qualify for the partial exclusion. The percentage of the $250,000 or $500,000 gain exclusion that can be taken is equal to the portion of the two-year period that you used the home as a residence. You can use days or months for this calculation.

For example, say you bought your home for $740,000 in September 2024 and you sell it for $790,000 in December 2025 because of your out-of-state job move. The maximum gain exclusion in this instance is $312,500 ($500,000 x (15/24)). So, your $50,000 gain would be fully excluded from income and would be tax-free.

3. What if my unmarried partner and I jointly own a home?

Question: My partner and I own our primary residence together and have lived here for 10 years. We plan to sell it next year. We aren't married and file our taxes separately as single filers.

When we sell the home, can each of us claim a $250,000 gain exclusion? And since there is lots of appreciation in the home since we bought it, are we allowed to split the remaining taxable gain so that we each pay capital gains tax on half of the amount?

Joy Taylor: Since your partner and you would have each owned and used the home as your primary residence for at least two out of the five years before the sale date, then each of you would qualify for the $250,000 home-sale exclusion. Any excess capital gain would be split between you. Each of you on your single-filed tax returns would report your share of the selling price and tax basis in your home to arrive at gain.

Here is a simple example. Say you sell your home for $1.5 million next year, and you have a total tax basis in the home of $200,000. Each of you would calculate your separate gain based on 50% of these figures. On your single-filed tax return, you would calculate gain before the home-sale exclusion of $650,000 ($750,000 sale price - $100,000 tax basis). Your taxable gain is $400,000 ($650,000 total gain - $250,000 home-sale exclusion). You would then report the $400,000 long-term capital gain on your Form 1040. You would use IRS Form 8949 to calculate the taxable gain and transfer the amount to Schedule D of your Form 1040. Your partner would do the same thing on his or her single-filed tax return.

4. Will Congress make all home-sale gains tax-free?

Question: Someone told me there is a congressional proposal in the House to make all gain on home sales tax-free. Is this true, and if so, do you think it will pass?

Joy Taylor: Some Republican lawmakers advocate making the full gain on home sales tax-free. House Representative Marjorie Taylor Greene (R-Ga) has introduced a bill, the "No Tax on Home Sales Act," to end the tax on sales of primary homes, saying her proposal would lead to increased housing supply. And President Trump has chimed in, saying he would be open to ending the tax on home sales.

This idea might sound wonderful, but I don't think it will come to fruition. The proposal would be very expensive and would mainly benefit upper-income individuals.

A more feasible option is a one-time increase in the current $250,000/$500,000 gain-exclusion amounts. Another potential alternative is to annually index the gain-exclusion amounts to inflation. The $250,000 and $500,000 figures have never been adjusted for the appreciation in residential real estate during the 28 years this popular tax break has been in effect. Both alternatives would require congressional action.

5. What is my gain exclusion if I sell my house after my husband dies?

Question: My husband and I jointly owned our home together for many years. He died last year, and I plan to sell my home in 2026. How much of my gain will be nontaxable?

Joy Taylor: If you sell the home in 2026, your home-sale exclusion would be $500,000. A spouse who sells the family home within two years after the death of the other spouse gets the full $500,000 exclusion that is generally available only to joint filers, provided the two-out-of-five-year use and ownership tests were met before death.

There is also a welcome added tax benefit since you owned the home jointly with your spouse. If you don't live in a community property state, half the home will get a step-up in tax basis upon the death of the first-to-die spouse. The rule is more generous if the house is held as community property. The entire tax basis is stepped up to fair market value when the first spouse dies.

Here's an example. Let's say you and your husband bought your home for $150,000 many years ago in a non-community property state, and it was worth $980,000 when your husband died in 2024. Your tax basis in the home jumps to $565,000 (your half of the original $150,000 cost basis plus half of your husband’s $980,000 date-of-death value). Twenty months later, you sell the home for $1,085,000. Of the $520,000 gain from the home sale ($1,085,000 - $565,000), $500,000 is tax-free and $20,000 is taxed at long-term capital gains rates.

About Ask the Editor, Tax Edition

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, IRAs and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, November 14: 20% Qualified Business Income Deduction

joy.taylor@futurenet.com (Joy Taylor) — Fri, 14 Nov 2025 12:05:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at five questions on the 20% tax deduction for qualified business income or QBI. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Did the OBBB extend the QBI deduction?

Question: I know the qualified business income (QBI) deduction was going to expire at the end of 2025. Did the “One Big Beautiful Bill” (OBBB) extend this federal income tax break?

Joy Taylor: Yes. The OBBB not only extended this popular tax break that was otherwise set to expire after 2025 but also made it permanent. Self-employed individuals, independent contractors, gig workers who aren’t employees, farmers, some landlords and owners of pass-through entities, such as partnerships, LLCs and S corporations, claim the 20% QBI write-off on line 13 of their Form 1040 and attach IRS Form 8995 or 8995-A.

QBI is one’s allocable share of income less deductions from a business. The rules can get complicated, especially for individuals with 2025 incomes that exceed $394,600 for joint filers and $197,300 for other filers.

This tax deduction was first enacted in the 2017 Tax Cuts and Jobs Act to provide some federal income tax parity between C corporations, which are taxed at a 21% rate, and pass-through entities, in which the individual owners pay income tax on earnings up to a 37% tax rate. Many congressional Republicans wanted to make the 20% QBI permanent, and they got their wish in the OBBB.

Note that making this tax break permanent cost the government lots of money. That’s because it is in the top 10 largest federal individual income tax expenditures, rounded up by the staff of the bipartisan congressional Joint Committee on Taxation.

2. Can freelancers claim the QBI deduction?

Question: I recently left my full-time job, and I am now an independent freelance consultant. Can I claim the 20% QBI deduction on my 2025 Form 1040?

Joy Taylor: Generally, yes. The QBI deduction applies not only to individual owners of pass-through entities, such as partnerships, S corporations and LLCs, but also to self-employed individuals who file Schedule C with their returns.

An important limitation applies to high earners in certain service fields. They include health, law, accounting, consulting, financial and brokerage services, performing arts, athletics, actuarial science, investing or trading in securities, or any business where the principal asset is the reputation or skill of its employees. If you are in one of the affected fields and your income for 2025 exceeds $394,600 for joint filers or $197,300 for single filers and head-of-household filers, the 20% deduction begins to phase out.

3. Do landlords qualify for the QBI write-off?

Question: I own rental property and generate a profit from the activity. Can I claim a 20% qualified business income deduction for my rental income that I report on Schedule E of my Form 1040?

Joy Taylor: It depends. Self-employed individuals and owners of LLCs, partnerships, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with incomes in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers.

Rental income reported on Schedule E of the Form 1040 may be eligible for the deduction in certain cases. There are two ways to qualify for the 20% QBI write-off for rental income. The first is if the rental activity rises to the level of a trade or business. For this purpose, the IRS’s regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses.

Treating rental income as QBI doesn’t change how you report that income on your Form 1040. Rental estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax.

4. Do REIT investors get the 20% QBI write-off?

Question: I am thinking of buying shares in a real estate investment trust (REIT). My financial advisor told me that REIT investors qualify for the 20% QBI deduction. Is this true?

Joy Taylor: Yes. The 20% QBI deduction also applies to holders of publicly traded partnership units and REIT shares. Individuals can deduct 20% of qualified REIT dividends, which are distributions not taxed under the favorable rules for capital gains and dividends, and 20% of their share of a PTP’s QBI.

5. How do LLC members know the amount of the entity’s QBI?

Question: I own membership interests in a multi-member LLC. How do I know if the LLC has QBI, and if it does, my allocable share of the LLC’s QBI?

Joy Taylor: The Schedule K-1 that you receive from the LLC will include your allocable share of the LLC’s QBI, if any, in the “Other Information Box” of the K-1 under a special code. Similar information will be shown on Schedule K-1s given to S corporation shareholders and to partners in partnerships.

About Ask the Editor, Tax Edition

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, November 7: Deducting Car Loan Interest

joy.taylor@futurenet.com (Joy Taylor) — Fri, 07 Nov 2025 12:33:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at four questions on the new tax deduction for paying interest on vehicle loans. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What are the general rules for the deduction?

Question: I hear that individuals can now deduct interest paid on their car loans. Can you explain this tax break?

Joy Taylor: The “One Big Beautiful Bill” law that was enacted on July 4 provides several new tax breaks for individuals. One of those is the up-to-$10,000 deduction for interest paid on loans to buy a new vehicle for personal use. This deduction is temporary, first taking effect on 2025 tax returns that you file next year, and ending after 2028. It is available to people who itemize on Schedule A of Form 1040 and to filers who claim standard deductions. This is a “below-the-line” deduction, meaning it is subtracted from adjusted gross income to arrive at taxable income.

The write-off begins to phase out at modified adjusted gross income (MAGI) over $200,000 on joint returns and $100,000 on other returns, and ends at MAGI of $250,000 on joint returns and $150,000 on others.

Interest paid on the purchase of a new qualified passenger vehicle is eligible for the deduction. A qualified passenger vehicle is a car, minivan, van, SUV, motorcycle or pickup truck with a gross vehicle weight rating of less than 14,000 pounds that is bought for personal use. Also, the vehicle’s final assembly must take place in the United States. You must purchase the vehicle in 2025 or later, and you cannot deduct interest paid on a loan to buy a used vehicle.

The lender must generally file an information return with the IRS, reporting the amount of interest received from the buyer of the car and send a copy to the purchaser. The IRS is providing some transitional relief from this reporting rule. For the 2025 year, the business receiving the car loan interest may satisfy its reporting obligations by making a statement available to the car buyer stating the total amount of interest received on a qualified passenger vehicle loan. This can be provided on an online portal, in a monthly statement or annual statement given to the buyer, or something similar.

This relief gives lenders extra time to comply with the normal reporting obligations and lets the IRS make necessary program changes and updates to its tax forms, while also giving car buyers the information they need to claim the new deduction.

2. What is MAGI?

Question: I know the deduction for interest paid on car loans begins to phase out at MAGI over a certain amount. What is the definition of MAGI for this deduction?

Joy Taylor: As stated above, the tax break begins to phase out at MAGI over $200,000 on joint tax returns and $100,000 on other tax returns, and ends at MAGI of $250,000 on joint tax returns and $150,000 on other tax returns.

MAGI is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks, or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of MAGI often differs, depending on what it is used for.

MAGI for this purpose is your adjusted gross income shown on line 11 of your Form 1040 or 1040-SR, plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

3. Can I deduct interest on my 2023 car loan?

Question: I bought a new car in 2023 for personal use, and I took out a loan to finance the purchase. Will I be able to deduct the interest that I pay this year on my 2025 tax return that I file next year?

Joy Taylor: Unfortunately, no. To qualify for the deduction, you must purchase the vehicle in 2025 or later. Since you bought the vehicle in 2023, you cannot deduct the interest that you pay on the car loan in 2025 or in later years.

4. How do I report this on my tax return?

Question: I bought a new car for personal use this past March, and I took out a loan to finance the purchase. How do I deduct the interest that I paid on the car loan on my 2025 Form 1040?

Joy Taylor: You would use new IRS Schedule 1-A to compute your MAGI and to calculate the amount of the car loan interest deduction. You would then transfer the deduction amount to line 13 of your Form 1040. Note that you will need to also put in the vehicle identification number on Schedule 1-A.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, October 31: Modified Adjusted Gross Income

joy.taylor@futurenet.com (Joy Taylor) — Fri, 31 Oct 2025 10:24:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at four questions on the meaning of modified adjusted gross income, or MAGI. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. MAGI — general rules

Question: I keep seeing references to modified adjusted gross income in stories about federal income tax breaks. What is modified adjusted gross income?

Joy Taylor: The IRS and other federal agencies often use a taxpayer’s modified adjusted gross income (MAGI) to determine eligibility for certain benefits or tax breaks, or to figure out whether a taxpayer owes surtaxes or surcharges. True to the complexity of the federal tax code, there is not just one definition of MAGI. The meaning differs, depending on what it is used for.

However, the one constant of MAGI is that it always starts with adjusted gross income, which is the amount shown on line 11 of your Form 1040 or Form 1040-SR.

To learn more, see The Many Definitions of Modified Adjusted Gross Income (MAGI)

2. MAGI and five OBBB deductions

Question: What is the definition of MAGI for the new $6,000 senior deduction?

Joy Taylor: The “One Big Beautiful Bill” (OBBB) provides five new or enhanced temporary tax breaks for individual taxpayers that first take effect on 2025 tax returns filed next year. All of these deductions begin to phase out for taxpayers with MAGI over a certain amount, as shown below.

The $6,000 deduction for filers age 65 or older ($12,000 on joint returns if each spouse is 65 or older) begins to phase out for taxpayers with MAGI over $150,000 on joint returns and $75,000 on single and head-of-household returns.
The up-to-$12,500 ($25,000 on joint returns) deduction for qualified overtime compensation begins to phase out for taxpayers with MAGI over $300,000 on joint returns and $150,000 on other returns.
The up-to-$25,000 deduction for qualified tips begins to phase out for taxpayers with MAGI over $300,000 on joint returns and $150,000 on other returns.
The up-to-$10,000 deduction for interest paid on a loan to buy a new vehicle begins to phase out for taxpayers with MAGI over $200,000 on joint returns and $100,000 on other returns.
The $40,000 cap on deducting state and local taxes (SALT) on Schedule A of the 1040 begins to phase out (but not below $10,000) for taxpayers with MAGI over $500,000 on joint, head-of-household and single returns, and $250,000 for married couples who file separate returns.

For purposes of all five of these new OBBB deductions, MAGI is your adjusted gross income shown on line 11 of your tax return, plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

3. MAGI and Medicare premiums

Question: I’m planning to enroll in Medicare in the next couple of years, and I want to avoid paying higher monthly Medicare premiums. What is the definition of MAGI for Medicare purposes?

Joy Taylor: Most people on Medicare pay the basic fee for Medicare Part B coverage, which for 2025 is $185.00 per month. Many also sign up for Part D prescription drug coverage. Some Medicare enrollees pay higher Part B and D monthly premiums if their MAGI exceeds a certain figure. For 2025 Medicare coverage, monthly premium surcharges (also known as IRMAA surcharges) kick in for joint filers with MAGI over $212,000, and for single filers with MAGI over $106,000. Updated amounts have not yet come out for 2026. The surcharges increase as MAGI rises.

The Medicare premium surcharges are calculated using MAGI reported on the most recently filed federal income tax return. For most people, 2025 Medicare premium surcharges are based on MAGI from 2023 returns, the amounts for 2026 will be based on MAGI from 2024 returns, and the amounts for 2027 will be based on MAGI from 2025 tax returns that you will file next year.

MAGI for this purpose is AGI shown on line 11 of your Form 1040 or 1040-SR plus any tax-exempt interest income.

4. Qualified charitable distributions

Question: I am 74 and am enrolled in Medicare. If I make a $25,000 qualified charitable distribution directly from my traditional IRA to charity this year, will this impact my MAGI that is used to calculate surcharges on my 2027 monthly Part B and D Medicare premiums?

Joy Taylor: For traditional IRA owners 70½ or older, a tax-smart way to give to charity is a qualified charitable distribution (QCD). You can transfer up to $108,000 directly from your IRA to charity in 2025. These QCDs are not taxable to you, they are not added to your adjusted gross income, and they can count toward your annual required minimum distribution (RMD) if done correctly. Note that you cannot deduct the QCD as a charitable contribution on Schedule A of the Form 1040.

As I stated in the prior paragraph, one of the benefits of doing a QCD is that it will not be included in your adjusted gross income and thus won’t affect your MAGI. So, if done right, doing a QCD can keep you under the MAGI threshold for higher Medicare premiums.

Let’s use your example of a $25,000 charitable contribution. Say you have a $75,000 RMD for 2025. If you take the full RMD as a taxable transfer, you will have $75,000 of income added to both your 2025 MAGI and taxable income. If you then make a $25,000 charitable contribution by personal check, you would be able to claim that as a deduction on Schedule A of your tax return, which would reduce your taxable income, but not your adjusted gross income or MAGI. If instead, you make the $25,000 charitable contribution through a QCD, and you do it in a timely manner so that it offsets $25,000 of your $75,000 RMD for 2025, you would be treated as receiving only a $50,000 taxable RMD, which would be added to both your adjusted gross income (and MAGI) and to your taxable income.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, October 24: What Medical Expenses are Deductible?

joy.taylor@futurenet.com (Joy Taylor) — Fri, 24 Oct 2025 10:32:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at nine questions on the tax deduction for medical expenses. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Can I claim medical expenses and the standard deduction?

Question: I normally claim the standard deduction when I file my Form 1040. This year, I have incurred lots of medical expenses. Can I deduct them and take the standard deduction?

Joy Taylor: No. The medical expense write-off is an itemized deduction claimed on Schedule A of Form 1040. You cannot take the standard deduction if you are itemizing deductions on Schedule A. It’s an either/or situation – either you claim the standard deduction OR you itemize deductions on Schedule A. You can’t do both.

2. Are Medicare premiums deductible?

Question: This will be the first year I am claiming medical expenses on Schedule A of the Form 1040. My spouse and I each pay monthly premiums for our Medicare coverage. Are the premiums we pay deductible medical expenses?

Joy Taylor: Yes. Taxpayers who itemize on Schedule A can deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of adjusted gross income. You can claim medical expenses that are not reimbursed by insurance for yourself, your spouse and your dependents.

3. Can we deduct long-term-care costs?

Question: My spouse is going into a long-term-care facility. Can we deduct our unreimbursed costs for the care that is not paid by insurance as a medical expense on Schedule A of Form 1040 if we otherwise itemize?

Joy Taylor: Medical expenses are deductible on Schedule A of the Form 1040 only to the extent the total exceeds 7.5% of your adjusted gross income. You will likely be able to deduct your spouse’s unreimbursed long-term-care costs as medical expenses. Long-term-care expenses include the costs of assisted living, in-home care and nursing home services.

The long-term care must be medically necessary for one who is chronically ill, meaning at least two activities of daily living can’t be performed without help for 90 days or more. Anyone in need of long-term care because of dementia or other cognitive impairment is also considered chronically ill if substantial supervision is needed to protect the individual’s health and safety.

The chronic illness must be certified by a licensed health care practitioner. The cost of meals and lodging at a facility or nursing home counts as medical expenses if a person is mainly there for medical care.

4. Are long-term-care insurance premiums deductible?

Question: I pay annual premiums for a long-term-care insurance policy. Can I deduct the premiums I pay as medical expenses on Schedule A of the Form 1040?

Joy Taylor: The premiums you pay for a long-term-care policy are deductible medical expenses, subject to limitations. For most taxpayers, these premiums are medical costs deductible by itemizers on Schedule A of the Form 1040 to the extent that total medical expenses exceed 7.5% of adjusted gross income. Self-employed individuals can deduct these premiums on Schedule 1 of Form 1040.

The deduction for long-term-care premiums is capped based on age. The older you are, the higher the tax break. For 2025, taxpayers who are 71 or older can deduct as much as $6,020 per person. Filers age 61 to 70 can deduct up to $4,810 per person. People aged 51 to 60 can deduct up to $1,800 each. Individuals who are 41 to 50 can take up to $900. And people age 40 and younger can deduct no more than $480. For 2026, these monetary caps are $6,200, $4,960, $1,860, $930 and $500, respectively.

Note that a tax break related to paying long-term-care premiums takes effect next year. Generally, pre-age distributions from IRAs and workplace retirement plans are hit with a 10% early withdrawal tax, in addition to any regular income tax that is due on the distribution. Beginning in 2026, you can withdraw up to $2,500 from your 401(k) or other plan each year to help pay for long-term-care premiums without having to pay the additional 10% tax if you are younger than 59½.

5. Do costs for a drug rehab program qualify?

Question: Are the costs for a drug treatment program deductible medical expenses?

Joy Taylor: Yes, the cost of treatment for drug use or alcoholism is a medical expense. And many other health and wellness costs also qualify as deductible medical costs. These include the cost of a smoking cessation program, nutritional counseling for a doctor-diagnosed disease, and a weight-loss program to help with the treatment of obesity, hypertension, heart disease or other physical illness diagnosed by a physician. Note thought that the cost of diet foods, weight-loss supplements or reduced-calorie beverages are not deductible medical expenses.

6. Are teeth whitening procedures tax deductible?

Question: I paid a dentist lots of money last year to get my teeth whitened. Can I deduct the cost as a medical expense on Schedule A of my Form 1040?

Joy Taylor: Unfortunately, no. The costs of procedures to improve your appearance generally aren’t deductible. These include, for example, a weight-reduction program, a gym membership or cosmetic surgery to improve your appearance. Teeth whitening and hair transplants don’t count either.

7. Can I deduct costs for service animals?

Question: We are getting a service dog for my child who has epilepsy. Can I deduct the cost of the dog and his veterinary bills?

Joy Taylor: Yes. Amounts you pay to purchase a service dog, and the costs of training, food, grooming and veterinary care, are deductible medical expenses. These animals assist the visually impaired and others who have physical disabilities, so the owner can write off the costs of buying and caring for their dogs on Schedule A of Form 1040 to the extent total medical expenses incurred exceed 7.5% of adjusted gross income.

In some cases, the cost of an emotional support animal may be deducted as medical expenses. The owner must show that he or she is using the animal primarily for medical care to alleviate a mental disability or illness.

Read more on tax breaks for parents of children with disabilities.

8. Is the cost of medicine from abroad deductible?

Question: I am thinking of buying medicine from another country because I cannot get it here in the U.S. Can I deduct the cost of that medicine?

Joy Taylor: It depends. Buying medicine from abroad can come with a hefty tax price. The cost is generally not deductible as a medical expense on Schedule A. That’s because federal law bars importing many drugs from other countries. There are some exceptions to this general rule. For one, you can include the cost of an imported drug in deductible medicals if the drug was imported legally, for example, as announced by the Food and Drug Administration (FDA). You can also include in medicals a drug’s cost if you purchased and used that drug in another country, provided the drug is legal in the other country and in the United States.

9. Do costs for abortion procedures qualify?

Question: Is the cost of an abortion a deductible medical expense?

Joy Taylor: It depends. People who itemize on Schedule A can include in medical expenses the amount paid for a legal abortion, meaning the procedure is performed in a state where abortion is legal. Transportation costs are also deductible. If you drive there, you can deduct out-of-pocket costs or use the standard mileage rate for medical driving, which is 21¢ per mile for 2025. Hotel expenses of up to $50 a night can also be deducted if the abortion is provided by a doctor in a licensed hospital or a medical care facility. You can deduct up to an additional $50 a night for a traveling companion’s lodging. Meals aren’t deductible.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, October 17: QCDs and Tax-Planning

joy.taylor@futurenet.com (Joy Taylor) — Fri, 17 Oct 2025 10:22:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. In the Ask the Editor May 9 column, she answered five questions on QCDs. This week, she’s looking at seven more questions on the topic. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Itemizing and doing a QCD

Question: Can I itemize on Schedule A of the Form 1040 and do a qualified charitable distribution (QCD) this year? And does this make sense?

Joy Taylor: People age 70½ and older can transfer up to $108,000 in 2025 from a traditional IRA directly to charity. QCDs can be done only from an IRA, either one that you own or an inherited IRA. You can’t do them from a 401(k) or other workplace retirement plan.

You can itemize on Schedule A and do a QCD, but you can’t deduct the QCD as a charitable contribution on Schedule A. QCDs are nontaxable and aren't included in your adjusted gross income (AGI). And they can count toward your required minimum distribution (RMD), thus reducing the taxable amount of the RMD, provided you do the QCD before withdrawing your full RMD for the year.

Because QCDs aren't included in adjusted gross income, they aren't counted in calculating your 2025 AGI for figuring out whether you would owe monthly surcharges on Medicare premiums for 2027. The fact that QCDs don't increase AGI has even more upside now because of the various new tax breaks in the "One Big Beautiful Bill" (enacted in July 2025) that begin to phase out at modified AGIs above a certain amount. These include the new $6,000 senior deduction for filers age 65 and older, the deductions for up to $25,000 of tips and $12,500 of overtime pay, the deduction for up to $10,000 of interest paid on an auto loan to buy a new vehicle, and the $40,000 cap on deducting state and local taxes on Schedule A. Depending on your circumstances and your income, you might be able to use the QCD strategy to keep your AGI below the various levels.

2. How to do a QCD

Question: I have check-writing privileges on my IRA. If I write a check from my IRA account to a charity and send it to the organization, will this qualify as a QCD?

Joy Taylor: It depends on the IRA custodian. It is true that only transfers from your IRA directly to charity are considered QCDs, but different IRA custodians have their own procedures for complying with this. Some will require that the check goes directly from the custodian to the charity. Others will, at the account owner’s request, have the check written from the IRA account and send the check to the IRA owner to forward to the charity. And others will allow IRA account owners with check-writing privileges to write the check and send it directly to the charity. Check with your IRA custodian to see what it sanctions before doing a QCD.

Note that it’s not acceptable for the custodian to write the check to the IRA owner, who then deposits the money and writes a check from his or her own account to the charity. It’s also not acceptable for an IRA owner with check-writing privileges to write a check from the IRA account to himself or herself and then make a donation to charity.

3. QCDs greater than the annual RMD

Question: I am of RMD age. Does it make sense to donate more money through a QCD over and above my annual RMD amount?

Joy Taylor: The answer depends on several factors. I'll discuss two of them here. First, if you are itemizing on Schedule A, then you would be able to deduct normal charitable contributions (those not made through a QCD). This is tax beneficial because it would reduce your taxable income and the amount of tax you would owe. Note that deducting a charitable contribution on Schedule A would not reduce your adjusted gross income. If you are not itemizing and you want to donate to charity, then doing a QCD over the RMD amount makes lots of sense.

Second, doing a QCD that exceeds your RMD would reduce your IRA balance for figuring RMDs in later years, which is a good thing.

For more information, I would suggest that you discuss with your financial advisor and a tax accountant whether it would be beneficial for you tax-wise to do a QCD in excess of your annual RMD.

4. Deductible IRA contributions and QCD

Question: I have made deductible contributions to my traditional IRA for the past few years. I am now 77. Do all of my post 70½ deductible IRA contributions count against me when attempting a QCD? Also, what about my wife’s post-70½ deductible contributions to her traditional IRA, which I have now inherited because she passed away? Do her deductible IRA contributions count against a QCD?

Joy Taylor: There’s a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until used up. Post-70½ deductible contributions to a SEP, SIMPLE IRA or a workplace retirement account aren’t affected by this rule.

Let’s take a simple example. A 75-year-old working man is planning to do a QCD for the first time in 2025. For 2021, 2022, 2023 and 2024, he made tax-deductible contributions to his traditional IRA totaling $23,000. In 2025, the man does a QCD and transfers $20,000 from his IRA directly to charity. He would owe income tax on the full $20,000 because it is less than the $23,000 of post-70½ tax-deductible IRA contributions. Let’s say that in 2026, he then transfers another $15,000 to charity directly from his IRA. $12,000 will be a nontaxable QCD, and $3,000 will be treated as a normal distribution.

Any post-2019 deductible contributions made to your IRAs when you were 70½ or older will reduce your allowable tax-free QCD amount until they are used up. Unfortunately, this rule applies to your original IRA and to the IRA you inherited from your wife (so her post-70½ deductible contributions would also reduce the tax-free QCD amount). IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs)” has a QCD worksheet, titled "Appendix D Qualified Charitable Deduction (QCD) Adjustment Worksheet" that includes a line for reducing your QCD amount by the post-70½ deductible contributions made to the IRA.

Note that if you have already done what you thought was a QCD this year, and it turns out it is not a tax-free QCD because of your post-70½ deductible contributions, then the distribution would be taxable to you. But if you itemize, you can take a charitable deduction on Schedule A of your Form 1040.

5. 401(k) contributions and QCDs

Question: I am 76 and still working. I contribute to my employer-sponsored 401(k) account every year. I have also done QCDs from my traditional IRA since I turned 72 and was required to start taking required minimum distributions from the IRA. Can I get the full advantage of my QCDs even though I also contribute to my 401(k)?

Joy Taylor: As discussed in the answer to question 4 above, there is a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until used up. Post-70½ deductible contributions to a SEP, SIMPLE IRA or a workplace retirement account aren’t affected by this rule, so you don’t need to worry about it. Your 401(k) contributions won’t impact the QCD.

6. Documentation substantiating a QCD

Question: I’m planning to do a QCD for the first time this year. What documentation do I need from the charity to show that I made the donation from my IRA?

Joy Taylor: When you do a QCD, you will want to receive a letter from the charity acknowledging the gift and stating that you didn't receive anything in exchange for your charitable donation. This is similar to what you would receive from a charity if you made a normal charitable contribution of cash. The letter from the charity doesn’t need to specifically state that the donation was made through a QCD, and likely won’t include that language. Also, be sure to keep a copy of the check or electronic transfer you sent to the charity.

7. Reporting QCDs on your tax return

Question: I have a traditional IRA that I currently take RMDs from. Last year, I did a QCD from that IRA for the first time. The Form 1099-R that I received from my IRA custodian doesn’t separate the QCD amount from the remaining RMD. How do I report the QCD on my Form 1040?

Joy Taylor: It is true that if you do a QCD, the Form 1099-R that you receive won’t reflect the distribution as a QCD. It will show only the total amount of your distributions because IRA custodians lack firsthand knowledge to discern whether a particular distribution from a traditional IRA meets the QCD rules. This is normal procedure.

The IRS is aware of this, and the Form 1040 instructions explain how to report the QCD on your tax return. When filling out the 2024 Form 1040, you would include on line 4a the total amount of distributions reported on Form 1099-R. Then you subtract the amount that was transferred directly to charity (the QCD portion) and report the remainder, even if zero, on line 4b. Write “QCD” next to line 4b so that the IRS knows why the numbers don’t match. If using tax software, the program should do this for you once you report the 1099-R distribution and let the program know about the QCD.

For example, here is an explanation from TurboTax: "To report a qualified charitable distribution on your Form 1040 tax return, you'll use the 1099-R (even though there's no indication that it was a QCD). Enter the info as a 1099-R and you'll be asked in one of the follow-up questions if it was a Qualified Charitable Distribution. TurboTax includes the full amount of the distribution reported on your Form 1099-R on line 4a (IRA Distributions) of your Form 1040 or 1040-SR. The taxable amount reported on Line 4b will be the total distribution less the QCD amount and will have 'QCD' entered next to it."

About Ask the Editor, Tax Edition

We have already received many questions from readers on topics related to tax changes related to the One Big Beautiful Bill and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, October 10: Capital Losses and the Wash Sale Rule

joy.taylor@futurenet.com (Joy Taylor) — Fri, 10 Oct 2025 22:02:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on capital-loss harvesting and the wash-sale rule. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is capital-loss harvesting?

Question: I keep hearing about capital loss harvesting as a strategy for year-end tax planning. What is capital loss harvesting?

Joy Taylor: Tax-loss harvesting (or capital-loss harvesting) is a way for investors to lower their federal income tax bills. The strategy involves selling stocks or other securities in your taxable investment accounts that have declined in value for the purpose of generating capital losses to offset capital gains from the sale of winners that you have sold during the year. Investors commonly do this closer to the end of the year, when they have a better idea of the amount of capital gains they will have.

2. What is the wash sale rule?

Question: I sold stock earlier this year for a large taxable gain. I have another stock that’s not performing well right now, so I want to sell it at a loss to help offset the capital gain. Can I then immediately buy back the stock I sell at a loss?

Joy Taylor: No. The wash sale rule in the federal tax code prevents this. You can’t deduct a capital loss from a sale of securities if you buy substantially identical securities up to 30 days before or after the sale. The recognized loss isn’t gone forever; it’s only suspended. That’s because the loss is added to the tax basis of your replacement securities.

3. How do wash sales apply between spouses?

Question: I sold stock from my taxable account this year at a loss. My spouse purchased stock in the same company the next day. Will the wash sale rule prevent me from deducting the capital loss from my stock sale?

Joy Taylor: Yes. The wash sale rule is a sneaky rule that can easily catch people by surprise. For example, selling a mutual fund at a loss shortly after the date a dividend is reinvested can lead to a wash sale. Also, buying stock in an IRA after selling the same stock at a loss in your taxable investment account results in a wash sale. You also have a wash sale if you sell securities, and your spouse or a corporation that you control buys substantially identical securities within the 60-day period.

4. What if I sell crypto at a loss?

Question: I own Bitcoin and I sold some at a loss earlier this year. About a week later, I bought some more Bitcoin. Does the wash sale rule prevent me from deducting the capital loss on the sale?

Joy Taylor: No. The wash sale rule doesn’t apply to taxpayers who sell cryptocurrency at a loss. The definition of securities for the purposes of the wash sale rule doesn’t include crypto. So, for example, if you own crypto that sharply falls in value, you can sell it, recognize a capital loss, and buy the same digital currency the same day or soon after.

5. How much capital losses can I deduct?

Question: How much capital loss can I deduct on my federal income tax return?

Joy Taylor: Your capital losses can offset your capital gains (which is why tax-loss harvesting is a popular strategy), plus up to $3,000 of other income ($1,500 if you are married and filing a separate return from your spouse). Excess losses are carried over to the next year and can help reduce future capital gains. For individuals, capital losses can be carried over indefinitely until they are used up.

For example, say you have $25,000 of capital gains and $40,000 of capital losses in 2025. You can use $25,000 of your capital loss to wipe out your capital gain. You can then deduct $3,000 of excess capital loss on your 2025 Form 1040 against your wages or other ordinary income and carry forward $12,000 of losses to the next year. You would use the capital loss carryforward worksheet in the instructions for Schedule D of the 1040 to figure the amount of capital loss that you can carry forward to 2026.

About Ask the Editor, Tax Edition

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, October 3: Tax Questions on the Charitable Deduction

joy.taylor@futurenet.com (Joy Taylor) — Fri, 03 Oct 2025 18:02:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the tax rules for charitable deductions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How do I substantiate my write-off?

Question: I donated money to charity earlier this year, and I would like to deduct the contribution on my tax return since I will be itemizing on Schedule A of Form 1040. What documents do I need to keep to support the tax write-off?

Joy Taylor: The required documentation for substantiating a charitable contribution write-off differs based on whether you are donating property or cash and the amount of the donation. I've set forth some of the rules here. For charitable gifts of cash:

Keep cancelled checks, electronic fund transfer receipts, credit card statements or a letter from the charity
For cash donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required

For charitable gifts of property:

A letter or receipt from the charity suffices for property donations under $250
For property donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required
Attach Form 8283 to your tax return if your property donation exceeds $500
Obtain a written appraisal for a donation of property over $5,000

You can find more information on the substantiation rules for charitable donations in IRS Publication 526, Charitable Contributions.

2. Will the IRS audit me?

Question: I am planning on making a big donation to charity closer to year-end. Will my IRS audit odds go up because of the large charitable contribution deduction I claim on Schedule A of my 1040?

Joy Taylor: It depends. You won’t automatically be audited by the IRS for claiming big deductions on your tax return. But if your write-offs are disproportionately large when compared with the income reported on your return, your risk of an audit rises because that is a key factor in the IRS’s process of selecting returns for examination. Make sure to keep good records and to comply with the substantiation rules for charitable contributions, which you can find in IRS Publication 526 (as above).

3. What if I donate an annuity contract?

Question: I am thinking of donating an annuity contract I own to charity. Can you explain the tax consequences if I decide to do this?

Joy Taylor: You will generally be treated as receiving taxable income equal to the difference between the annuity’s cash surrender value and your investment in the contract. For example, say you have a small variable annuity in which you invested $20,000 years ago, and it’s now worth $43,000. If you donate it to charity, you’ll have to report $23,000 of the appreciation as additional income on your tax return in the year of the transfer. You will also be able to take a charitable deduction on Schedule A of Form 1040. The charitable write-off will equal the value of the annuity in most cases.

4. Any changes for next year?

Question: I heard that the “One Big Beautiful Bill” (OBBB) allows nonitemizers to deduct charitable contributions. When does this take effect?

Joy Taylor: The OBBB has mixed news for individuals who make charitable donations. Two new rules begin in 2026, meaning they will first affect your 2026 tax return that you file in 2027. First, the good news. Nonitemizers will be able to deduct up to $1,000 of their charitable cash contributions. The amount is $2,000 for joint filers.

Now, the bad news. Charitable donations claimed by itemizers on Schedule A will be subject to a haircut. Beginning with 2026 returns, the charitable write-off is deductible only to the extent that total charitable gifts exceed 0.5% of adjusted gross income. For example, say your AGI is $232,000 and you donate $14,000 to charity in 2026. If you itemize on Schedule A, you can only deduct $12,840 of charitable contributions ($14,000 – ($232,000 x 0.005)).

5. Will I owe tax if I donate I bonds?

Question: I own Series I savings bonds that have not yet matured. Can I donate the I bonds to charity before they mature and avoid a federal income tax hit?

Joy Taylor: No. Series I (and EE) bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature (generally 30 years) or when they’re cashed in, whichever comes first.

I assume you have deferred reporting for federal income tax purposes the annual interest that you earned on the savings bonds. Gifting away EE or I bonds to someone else, including a charitable organization, before those bonds mature, doesn’t let you avoid the tax on previously untaxed interest. Instead, it will accelerate interest reporting. You will owe federal income tax on all the previously deferred interest in the year you make the donation.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, September 26: Tax Questions on the New Tips Deduction

joy.taylor@futurenet.com (Joy Taylor) — Fri, 26 Sep 2025 12:31:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the new tax deduction for tipped income. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the tips deduction?

Question: I work as a hairdresser. I heard that my tips will now be tax-free. Can you explain how this works?

Joy Taylor: The “One Big Beautiful Bill” enacted lots of tax breaks, with some important ones beginning this year. One of these is the deduction for up to $25,000 of tipped income. It’s available for taxpayers taking standard deductions and for those who itemize on Schedule A of Form 1040. The deduction is below-the-line, meaning it’s subtracted from adjusted gross income to arrive at taxable income. This deduction is temporary, first taking effect on 2025 tax returns filed next year and ending after 2028.

There are lots of rules and limitations. For example, there’s an income limit. The deduction begins to phase out at modified adjusted gross income (modified AGI) over $300,000 for joint filers and $150,000 for others. And the taxpayer who received the tips must include a Social Security number on Form 1040.

Only qualified tips are deductible. They must be paid voluntarily without negotiation in an amount chosen by the payer. Tips received through a tip-sharing arrangement are also qualified tips. Service charges or other amounts automatically added to a customer’s bill don’t qualify unless customers can disregard or modify them without consequences. Individuals in certain professional service businesses can’t take the deduction. The tips must generally be reported on IRS Form W-2, 1099 or similar form. Self-employed individuals must include the tips in their Schedule C income.

The tips must be from an occupation that traditionally receives tips. The IRS lists 68 job titles in eight categories that meet this rule. Many of the job titles make common sense. These include bartenders, restaurant wait staff, maids, caterers, casino dealers, parking valets, taxi and rideshare drivers, hairdressers, manicurists, massage therapists, tour guides, chefs, musicians and singers, bellhops, tutors, pet sitters, nannies, golf caddies and tattoo artists. Others aren’t as intuitive, such as digital content creators, home heating and air conditioning mechanics, and home plumbers and electricians.

2. Is the write-off higher for married filers?

Question: I am married and file a joint return with my husband. We both receive tips. Is the $25,000 maximum tips deduction doubled for us?

Joy Taylor: No. The maximum deduction is $25,000, regardless of whether you file a joint return, single return or head-of-household return. Note that if you are married, you must file a joint return with your spouse to claim the tips deduction. Married couples who file separate tax returns cannot take the write-off for tipped income.

3. What is modified AGI?

Question: What is the definition of modified AGI for purposes of the tips deduction?

Joy Taylor: The tips deduction begins to phase out at modified AGI over $300,000 for joint filers and $150,000 for other filers. More specifically, the write-off is reduced, but not below zero, by $100 for each $1,000 by which the taxpayer’s modified AGI exceeds the $300,000 or $150,000 thresholds.

The federal tax law has many different definitions of modified AGI. For this purpose, modified AGI is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income because it was received from sources in Puerto Rico, Guam, American Samoa or the Northern Mariana Islands.

4. What does cash tips mean?

Question: I heard that only cash tips are deductible. Is that correct?

Joy Taylor: Yes and no. While the relevant statute defines qualified tips as cash tips received by an individual, the statute and the IRS’s proposed regulations broadly define cash tips. Per the regulations, they include tips paid by cash, check, debit card, credit card, gift card, casino chips that can be readily exchanged for cash, or through an electronic or mobile payment app. Tips received through a tip-sharing arrangement or tip pool also qualify.

5. What about automatic gratuities?

Question: I work as a server at a restaurant, and we add a 20% automatic gratuity to each customer’s check. Can I deduct my share of these gratuities?

Joy Taylor: It depends. Service charges, automatic gratuities or other mandatory amounts automatically added to a customer’s bill aren’t eligible to be deducted as qualified tips unless the customer is expressly provided an option to disregard or modify it without consequences. The IRS’s proposed regulations provide several examples to illustrate this concept.

6. How do I claim the tips deduction?

Question: Where do I report the tips deduction on my Form 1040 or 1040-SR?

Answer: The IRS has released a draft new schedule for eligible taxpayers to claim the tips deduction, as well as the $6,000 senor deduction for filers 65 or older ($12,000 if both filers are age 65 or older), the up-to-$12,500 of overtime pay ($25,000 for joint filers), and the deduction for up to $10,000 of interest paid on loans to buy a new automobile. Eligible taxpayers will use Schedule 1-A titled “Additional Deductions” to calculate the modified AGI and to claim the tax breaks for which they qualify. They will then transfer the total to new line 13-b on the 2025 Form 1040.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, September 19: Tax Questions on Expiring Home Energy Tax Credits

joy.taylor@futurenet.com (Joy Taylor) — Fri, 19 Sep 2025 12:32:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on expiring tax credits for energy-saving upgrades to your home. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. When does the tax credit for solar panels expire?

Question: I'm planning to install solar panels in my house. I heard that the “One Big Beautiful Bill” (OBBB) is ending the federal income tax break for this. When does the tax credit expire?

Joy Taylor: The residential clean-energy credit is a nonrefundable income tax credit for people who install an energy system in their home that relies on a renewable energy source, such as solar. Solar panels and solar electric equipment are eligible for the credit, whether they are installed in a primary residence or vacation home. The tax credit is equal to 30% of the cost of equipment and installation, with no maximum dollar limit.

Under the OBBB, the residential clean-energy credit ends after this year. More specifically, it is repealed for property placed in service after December 31, 2025. Paying for the solar panels before January 1, 2026, is not enough to secure the credit. You will need to pay for them and get them installed by the end of 2025.

2. Can I carry over tax credits?

Question: I installed solar panels in my house earlier this year, and I think the tax credit I am eligible for will be less than the federal income tax that I will owe for 2025, so I plan to carry forward the credit to 2026. Now that the credit is repealed as of Dec. 31, if I don’t use up the full credit amount on my 2025 tax return, can I carry over the excess to next year or do I lose it?

Joy Taylor: The residential clean-energy credit for solar panel installation in your home is not a refundable credit. It can only be used to reduce the amount of income tax owed. If the credit exceeds your tax liability, the IRS won’t refund you the difference. Instead, any unused portion of the tax credit can be carried over to future tax years.

It seems to me that since you paid for and installed the solar panels in your home in 2025, you are entitled to the full tax credit, even if you can’t use the full amount on your 2025 tax return and have to carry forward any unused excess credit to future years. That’s because the credit is repealed for property placed in service after December 31, 2025, and you paid for and completed the installation before this date.

3. Is there a tax credit for a new central air system?

Question: I am thinking about replacing my central air conditioning system in my home with a new, energy-efficient model. Is there a federal income tax credit for this upgrade?

Joy Taylor: Yes, but you must install the new model in your home and pay for it by December 31, 2025 if you want a tax credit.

The energy efficient home improvement credit is for homeowners who install smaller home energy-saving upgrades, such as heat pumps, exterior doors and windows, central air-conditioning systems and boilers. Like the larger residential clean energy credit discussed above, the energy-efficient home improvement credit ends after this year, thanks to the OBBB. More specifically, it is repealed for property placed in service after December 31, 2025. Paying for the new central air conditioning system and installation fee before January 1, 2026, is not enough to secure the credit. You will need to pay for it and get it installed in your home by the end of this year.

The basic credit is 30% of the cost and installation of certain types of insulation, boilers, central air-conditioning systems, water heaters, heat pumps, exterior doors and windows, etc., that you put into your home. These items must also meet certain energy-efficiency requirements, depending on the product. There is a $1,200 general aggregate annual credit limit. But many specific upgrades have lower monetary credit limits and others have higher ones. Here are the item-by-item yearly caps:

$150 for a home-energy audit
$500 in aggregate for exterior doors (a maximum of $250 per door)
$600 for exterior windows or skylights; natural gas, propane or oil water heaters; electric panels; central air conditioners; or natural gas, propane or oil furnaces or boilers
$2,000 for biomass stoves or biomass boilers; electric or natural gas heat pump water heaters; or electric or natural gas heat pumps

4. How do caps work with multiple energy-saving upgrades?

Question: I know that there are monetary caps for specific items that qualify for the energy efficient home improvement credit. Can you explain how these caps work if you install multiple energy-efficient upgrades in your home at the same time?

Joy Taylor: Here are two examples that illustrate how the various credit limits baked into the energy efficient home improvement credit work. Let’s say that in 2025, you purchase and install in your home two exterior doors at a cost of $1,000 each, windows and skylights at a total cost of $2,200, and a $6,000 central air conditioner. Let’s assume for this purpose that each of these upgrades meet the energy-efficiency requirements for taking the credit. Your 2025 tax credit amount is $1,200. Now, change the facts. In 2025, you purchase and install in your home a natural gas heat pump that costs $7,000, a $4,000 natural gas tankless water heater, and a $6,000 central air conditioner. Again, let’s assume that each of these upgrades meet the energy-efficiency requirements. Your total maximum credit is $3,200 -- $2,000 for the heat pump. $600 for the water heater and $600 for the air conditioner.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, September 12: Tax Questions on 529 Plan Rollovers to a Roth IRA

joy.taylor@futurenet.com (Joy Taylor) — Fri, 12 Sep 2025 12:50:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on transferring 529 plan money to a Roth IRA. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. General rules for 529 rollover to a Roth IRA

Question: We funded a 529 college savings plan for my granddaughter. She used the money in the account for college. She’s now done with school, and there are still unused funds in the account. I heard that we can transfer some of the money to a Roth IRA for her. What are the rules for this?

Joy Taylor: Starting in 2024, some excess 529 funds can be transferred tax-free to a Roth IRA for the beneficiary in a direct trustee-to-trustee transfer. This relief, enacted in the SECURE 2.0 legislation, is subject to important rules:

The 529 account must have been open for at least 15 years, with the same beneficiary.
529 contributions made in the prior five years are ineligible for the transfer.
Annual 529 distributions for this purpose can’t exceed the annual contribution limit for Roth IRAs, which is $7,000 in 2025.
And there is a lifetime $35,000 cap.

2. Roth IRA contributions made by beneficiary

Question: My son already contributed the maximum amount of $7,000 to his Roth IRA this year. Can we also do a direct trustee-to-trustee transfer of $7,000 from his 529 account to his Roth IRA in 2025?

Joy Taylor: No. The annual transfer limit from the 529 to the Roth IRA can’t exceed the IRA contribution limit for the year of the rollover. Any actual contributions for the year made to any IRA (traditional or Roth) owned by the beneficiary count against this limit. For example, let’s say a 529 plan beneficiary contributes $3,000 to his traditional IRA in 2025. Only $4,000 of leftover 529 funds can be transferred to his Roth IRA in 2025. If the beneficiary has already maxed out IRA contributions in a year, then no 529 funds can be transferred to the Roth IRA that year.

3. Taxable compensation

Question: If the beneficiary of the 529 plan doesn’t have any taxable compensation for the year, can the 529 plan transfer funds to a Roth IRA in a direct trustee-to-trustee transfer?

Joy Taylor: No. Any transfer from the 529 plan to a Roth IRA must meet all the Roth IRA rules, which means the beneficiary must have taxable compensation equal to or greater than the 529 amount transferred to the Roth IRA.

4. Multiple 529 plans

Question: If a person is the beneficiary of two 529 plans, say one from a grandparent and another from a parent, can each 529 account transfer up to $35,000 to a Roth IRA owned by the beneficiary?

Joy Taylor: It doesn’t appear so. The statutory language says that the $35,000 aggregate limit on direct trustee-to-trustee transfers from a 529 account to a Roth IRA applies with respect to the designated beneficiary. Although the IRS hasn’t yet published any guidance on this, tax and financial experts believe that this means the $35,000 limit applies per person. If an individual is the beneficiary of two 529 accounts, $35,000 (and not $70,000) is the lifetime cap on direct trustee-to-trustee transfers to a Roth IRA.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, September 5: Tax Questions on SALT Deduction

joy.taylor@futurenet.com (Joy Taylor) — Fri, 05 Sep 2025 11:41:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the state and local tax deduction. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How did the OBBB affect the SALT deduction?

Question: What changes did the “One Big Beautiful Bill” (OBBB) make to the state and local tax (SALT) deduction?

Joy Taylor: The 2017 Tax Cuts and Jobs Act (TCJA) imposed a $10,000 federal cap on the deduction for state and local taxes claimed by itemizers on Schedule A of Form 1040. Specifically, under the TCJA, filers could deduct on Schedule A any combination of state and local property taxes, and income or sales taxes, up to a total of $10,000. Married couples filing separate federal tax returns could deduct only up to $5,000 apiece. The cap was temporary and was set to expire at the end of 2025.

The OBBB increased the SALT deduction cap to $40,000 for five years (2025-2029). It goes back down to $10,000, beginning in 2030, unless Congress otherwise acts to raise it again at that time. The cap for married couples who file separate returns is $20,000 apiece for 2025-2029.

There is also an income limit. For 2025, the SALT write-off begins to phase out, but not below $10,000, for filers with modified adjusted gross incomes (modified AGI) over $500,000 ($250,000 for married couples who file separate returns). More specifically, the $40,000 cap is reduced by 30% of the excess of the taxpayer’s modified AGI over the $500,000/$250,000 levels. When modified AGI reaches $600,000 or higher, the $10,000 SALT deduction cap applies.

The $40,000 cap and $500,000 modified AGI threshold will increase 1% each year through 2029. For example, for 2026 returns, the SALT deduction cap will be $40,400 and the income limit at which the deduction will begin to phase out will be modified AGI over $505,000.

2. When does the new cap apply?

Question: When does the $40,000 cap on deducting state and local taxes kick in? Can I deduct it on my 2025 Form 1040 if I itemize?

Joy Taylor: As discussed in the first question, the $40,000 cap is for 2025-2029. That means that the higher limit will apply to your 2025 federal tax return that you file next year, provided you itemize on Schedule A of Form 1040.

3. Can I claim the standard deduction and SALT?

Question: Can people who claim the standard deduction on Form 1040 also deduct their state and local taxes that they pay?

Joy Taylor: Generally, no. If you claim the standard deduction on your Form 1040, then you can’t also itemize and deduct your state and local taxes. Note, however, that if you are self-employed, you can deduct your property and sales taxes in full on Schedule C. Farmers can fully deduct state and local property taxes on Schedule F. And landlords can deduct on Schedule E the property taxes they pay on real estate.

4. How does the OBBB affect state workarounds?

Question: Did the OBBB restrict state workarounds for owners of partnerships, LLCs and other pass-through entities?

Joy Taylor: No. Most states enacted workarounds after 2017 to help lawyers, accountants, doctors and other individuals who are partners in partnerships, members of LLCs or shareholders in S corporations, circumvent the then-$10,000 SALT deduction cap. These workarounds, commonly known as the pass-through entity tax (PTET) regime, allow partnerships and other pass-through entities to elect to pay an entity-level state income tax instead of having the entity’s owners pay state tax on the entity’s income that is passed through to them. The owners then get a state tax break for their pro-rata share of tax paid by the firm. When an election is made, state income tax payments shift from the business owners, who are subject to the SALT cap, to the pass-through entities, which are not.

The House version of the OBBB included language that would have ended these popular state PTET workarounds. The Senate version, which ultimately became law, removed that language.

5. SALT write-off and AMT

Question: How does the SALT deduction claimed on Schedule A interact with the alternative minimum tax (AMT)?

Joy Taylor: AMT is due to the extent it exceeds regular federal income tax liability. Prior to 2018, many upper-income individuals who were subject to AMT did not get a tax benefit from SALT write-offs. That's because in figuring alternative minimum taxable income, taxpayers have to add back in SALT deductions taken on Schedule A. The 2017 TCJA temporarily defanged much of the AMT through 2025, resulting in far fewer taxpayers paying AMT now, compared with pre-2018 years.

The OBBB made the 2017 easings to the AMT permanent — with some changes. This means that the vast majority of taxpayers will not be subject to the AMT. However, since the SALT deduction is still not allowed for AMT purposes, taxpayers who claim the up to $40,000 SALT deduction on Schedule A and who are subject to the AMT might owe more AMT than in 2018-2024. But the new modified AGI phaseout rules for deducting state and local taxes on Schedule A will more likely adversely impact upper-income taxpayers than the interaction of the SALT deduction and AMT.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, August 29: Tax Questions on Estate and Gift Taxes

joy.taylor@futurenet.com (Joy Taylor) — Fri, 29 Aug 2025 11:39:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on estate and gift taxes. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Estate tax changes under the OBBB

Question: Did the “One Big Beautiful Bill” (OBBB) make any changes to the federal estate and gift tax?

Joy Taylor: Yes. It increased the lifetime federal estate and gift tax exemption and made it permanent. For 2025 deaths, the exemption is $13,990,000, and the highest estate tax rate is 40%. This exemption amount was enacted in the 2017 Tax Cuts and Jobs Act, but it was temporary, set to expire after 2025 and drop to $7 million or so. The OBBB not only made the larger lifetime estate and gift tax exemption permanent, but also increased it to $15 million for 2026 deaths. This figure will rise each subsequent year to account for inflation.

The top federal estate tax rate remains 40%. The OBBB did not change this.

2. State death taxes

Question: Which states impose taxes upon death?

Joy Taylor: Most states do not impose taxes upon death. However, some do. Washington, D.C., and 12 states levy their own estate taxes on decedents. These states are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. The estate tax exemption amounts in the 13 locales vary widely from state to state, and most are far below the federal exemption. Only Connecticut has hiked its estate tax exemption amount to close to the current federal level.

Five states have inheritance taxes. They are Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. As you can see, Maryland has an estate tax and an inheritance tax.

For more information, see 18 States With Scary Estate and Inheritance Taxes.

3. Estate tax portability

Question: I am married, and when I die, my estate will be less than the $15 million federal lifetime estate and gift tax exemption. Can any unused exemption be transferred to my spouse?

Joy Taylor: Yes. When you die, your estate can do this by making what is called a federal estate tax portability election. Portability allows a married decedent’s unused federal lifetime estate and gift tax exemption to pass to the surviving spouse. But transferring the unused exemption isn’t automatic. An estate elects portability by timely filing an estate tax return on IRS Form 706. Filing the Form 706 is required to elect portability, even if the estate is not otherwise required to file the 706 because its assets and previous taxable gifts made by the decedent are below the normal threshold amount for filing a federal estate tax return, which is $13,990,000 for 2025 deaths and $15 million for 2026 deaths.

4. The annual gift exclusion amount

Question: What is the annual federal exclusion amount for gifts made in 2025? And did the OBBB change this?

Joy Taylor: The annual federal gift tax exclusion is $19,000 per donee this year. This means in 2025, you can give up to $19,000 per person without paying federal gift tax, tapping your lifetime estate and gift tax exemption or filing a federal gift tax return. Here’s an example. Say you have two sons and three grandchildren, and you want to gift the maximum amount to each of your relatives, including your sons’ spouses, without having to file a gift tax return in 2025. The most you can give is $19,000 to each relative. That’s $133,000 in excludable gifts.

The OBBB didn’t change the annual gift tax exclusion. So for 2026, the amount will stay close to $19,000. It might be a bit higher because of inflation.

Note that recipients of your gifts will not owe federal income tax on the amount of the gift they receive. Gifts are excluded from gross income, no matter the amount.

5. Gifts over the exclusion amount

Question: I am planning to gift my son $100,000 this year. Do I have to pay federal gift tax on this?

Joy Taylor: It is unlikely that you will have to pay any federal gift tax on this gift to your son. Although the $100,000 gift would exceed the $19,000-per-donee annual gift tax exclusion amount, you will not owe any federal gift tax, provided that your total lifetime gifts don’t exceed the lifetime estate and gift tax exemption, which for 2025 deaths is $13,990,000. You will have to file a federal gift tax return on IRS Form 709 to report the gift to the IRS because the gift is over the $19,000 annual exclusion amount.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, August 22: Tax Questions on What Congress Will Do Next

joy.taylor@futurenet.com (Joy Taylor) — Fri, 22 Aug 2025 11:46:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on what Congress will do next with taxes. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Federal government shutdown

Question: What are the chances that the federal government will shut down after September 30?

Joy Taylor: Although there is a chance the federal government will close on October 1, the odds are better that Democrats and Republicans in Congress will reach a short-term extension agreement to fund the government for maybe 30 days. We expect that this government funding fight will continue throughout the fall.

Many hurdles need to be cleared for Congress to reach a government funding deal by the end of September, including the following. First, Republicans and Democrats are very much divided. Second, there is intraparty bickering among Republicans. Third, the push by the White House to claw back money previously approved by Congress is also causing friction. In July, Republicans agreed to rescind $9 billion in previously approved spending for the Corporation for Public Broadcasting and foreign aid. President Trump wants Congress to approve a second bill rescinding even more funding, although we don't yet know the details. Democrats are fuming over these rescission bills and are questioning whether they should cooperate with their Republican colleagues on government funding if Congress is later going to renege and rescind the money.

2. IRS and a government shutdown

Question: If the federal government does shut down after September 30, how will this impact the IRS?

Joy Taylor: Luckily, if there is a government shutdown, it will not occur during the filing season. So filers generally won't have to worry about late refunds or delayed return processing.

However, the IRS has a lot on its plate to implement all of the tax changes in the so-called One Big Beautiful Bill law (OBBB), which was enacted on July 4. The agency has to revise forms, instructions and publications, and do it soon, since many of the OBBB's changes take effect for 2025 tax returns that will be filed early next year. Several of the new tax changes have complicated rules and guardrails that will require IRS guidance to interpret. Also, the IRS's IT people have to reprogram computer systems to account for all the changes.

Implementing the OBBB changes will be a hurculean task for an agency that by Sept. 30, 2025, is expected to lose 25% of its total workforce. However, although it's a massive undertaking and there will definitely be hiccups, we believe that the agency will step up. Passing the OBBB was a White House priority, and President Trump's administration will pressure the Treasury Dept. and the IRS for as seamless an implementation process as possible. This is so, even in the midst of a possible government shutdown. If the government does shutter, we think the IRS will keep many employees working to implement the OBBB changes.

3. Obamacare subsidies

Question: Will Congress extend the expansions to the health premium tax credits (PTC) that are set to expire after this year?

Joy Taylor: We think so, but it's still too soon to tell. The PTC is an Obamacare tax subsidy for eligible individuals who buy health insurance through the marketplace. Most people who qualify opt for the PTC to be paid in advance, directly to the health insurance company, to lower their monthly premium payments.

During the height of the COVID-19 pandemic, federal lawmakers enhanced the PTC, allowing more people to qualify and increasing the credit amount. But these expansions are temporary, ending after 2025. Letting these expansions lapse will impact people seeking health insurance for 2026 and later years and could cause millions to lose insurance.

Extending the expiring expansions to the PTC is a priority of democratic lawmakers in Congress. Don't be surprised if Democrats use this as a negotiating tool in the government funding discussions. There is a willingness among some Republicans in Congress to make a deal with Democrats on this issue.

4. Another budget reconciliation bill

Question: I keep reading that House Speaker Mike Johnson (R-LA) wants to do another budget reconciliation bill this year. Do you think this will happen, and if so, what will it cover?

Joy Taylor: Republicans in Congress passed the OBBB through the complicated budget reconciliation process. This allowed them to bypass the 60-vote filibuster rule in the Senate and instead pass the law on a strict majority vote. Republican leaders and tax writers are now saying that they would like to pull off another reconciliation bill this fall. Items that could be included in any such bill are further cuts to Medicaid and other provisions that were in the House's version of the OBBB but were slashed by the Senate parliamentarian because they violated procedural rules.

We think the odds of another reconciliation bill this year are quite low. Many in Congress don't see this as a priority, nor do they have the stomach to go through this process again. Remember, the OBBB passed in the Senate only because of the tie-breaking vote by Vice President Vance. Also, there's a lot on Congress's plate, first and foremost, avoiding a government shutdown. And, as we said above, we expect that process to last through the end of the year.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, August 15: Tax Questions on the OBBB, Tax Rates

joy.taylor@futurenet.com (Joy Taylor) — Fri, 15 Aug 2025 11:49:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the OBBB and tax rates. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Income tax rates

Question: Did the “One Big Beautiful Bill” act (OBBB) extend the lower federal income tax rates for individuals that were going to expire after 2025?

Joy Taylor: Yes. Federal income tax rates for C corporations, individuals, trusts and estates will stay the same. C corporations are taxed at a 21% rate. The individual income tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. The federal income tax rates for trusts and estates are 10%, 24%, 35% and 37%. These are all permanent.

2. Income tax withholding tables

Question: Will the IRS adjust the 2025 federal income tax withholding tables to reflect the changes in the OBBB?

Joy Taylor: No. The IRS announced that it will not update the 2025 federal income tax withholding tables to account for the new tax breaks in the OBBB, such as the higher standard deduction, the write-offs for tips and overtime pay, and the $6,000 senior deduction for filers 65 and older. Although these new tax breaks begin in 2025, filers won’t reap the benefits of them until next year when they file their 2025 tax returns.

3. Estate tax

Question: Did the OBBB lower or eliminate the top 40% federal estate tax rate?

Joy Taylor: No. The top federal estate tax rate stays at 40%. But the higher lifetime estate and gift tax exemption is now permanent, and is even bigger, beginning in 2026. The federal lifetime exemption for 2025 deaths is $13,990,000. Starting with 2026 deaths, the exemption rises to $15 million (and is indexed for inflation for each year thereafter). So fewer estates will have to file a federal estate tax return.

4. Net investment income tax

Question: Did the OBBB repeal the 3.8% surtax on net investment income of individuals with higher incomes?

Joy Taylor: No. The 3.8% net investment income (NII) tax was not changed in the OBBB. The tax applies to single filers with modified adjusted gross incomes (AGI) over $200,000, joint filers with modified AGI over $250,000, and married people filing separately with modified AGI above $125,000. For this purpose, modified AGI is defined as AGI plus tax-free foreign-earned income. The NII tax, which is added to the regular income tax, is due on the lesser of NII or the excess of modified AGI over the $200,000/$250,000/$125,000 thresholds. Investment income of trusts and estates can also be hit with the 3.8% NII tax if their 2025 AGI exceeds $15,650 and they have undistributed net investment income.

NII includes what is commonly thought of as investment income: Dividends, capital gains, taxable interest, annuities, royalties and passive rental income. Trade or business income derived through a passive activity is also NII, provided that the business income isn’t otherwise subject to self-employment tax.

For more details on the 3.8% NII tax, see our article “More People Are Paying This Tax On Investment Income Each Year.”

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the “One Big Beautiful Bill" act and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, August 8: Tax Questions on Roth IRA Conversions

joy.taylor@futurenet.com (Joy Taylor) — Fri, 08 Aug 2025 12:24:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on converting a traditional IRA to a Roth IRA. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. When to take the annual RMD

Question: My husband owns one traditional IRA. He turns 73 this year and wants to wait until the first quarter of 2026 to take his first annual required minimum distribution (RMD). Can he do a Roth IRA conversion in 2025 before taking his first RMD in early 2026?

Joy Taylor: No. Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth IRA conversion must first take their annual RMD for the year before doing the conversion. A person who turns 73 in 2025 can wait until April 1, 2026, to take the first RMD. But that first RMD, even if delayed, is still an RMD for 2025 and is based on the IRA balances as of Dec. 31, 2024. Your husband has two choices: He can take his 2025 RMD from his traditional IRA this year and then do a 2025 Roth conversion. Or he can defer taking his 2025 RMD until no later than April 1, 2026, and do the Roth conversion after that date. Note that if he waits until 2026, he will also have to take his 2026 RMD before doing the Roth conversion.

2. Multiple traditional IRAs

Question: I have four traditional IRAs. I want to convert a part of one of my IRAs to a Roth this year. I know I have to take my annual RMD for 2025 before I do the Roth conversion. How does this rule work for people with multiple IRAs?

Joy Taylor: For people with multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs (Note that this doesn’t include RMDs from 401(k)s or other workplace retirement plans.) For example, say your 2025 aggregate RMD from your four traditional IRAs is $68,526. If you want to do a Roth conversion from any of your four traditional IRAs in 2025, you must first take your 2025 aggregate RMD of $68,526 from any of your traditional IRAs that you choose and then do the Roth conversion for the year. Note that this RMD twist involving Roth conversions and multiple traditional IRAs is pretty new. It was enacted in late 2022 in the SECURE 2.0 Act.

3. Tax implications

Question: I am thinking about doing a Roth conversion this year. I know that I will owe income tax on the converted funds. Are there any other adverse tax impacts I should know about?

Joy Taylor: You nailed the biggest income tax implication in your question. The converted funds will be subject to income tax for the year of the conversion. And if your Roth IRA assets go down in value soon after the conversion, you cannot undo the conversion. The 2017 Tax Cuts and Jobs Act ended so-called recharacterizations of Roth conversions. So you are stuck with your original income tax bill from the conversion.

Note that the additional income from converting can trigger higher adjusted gross income (AGI) on your 2025 tax return. A higher AGI could preclude you from taking deductions that have AGI income threshold limitations. And there are lots of these types of deductions. For example, the recently passed “One Big Beautiful Bill Act” provides several new deductions for 2025, including a $6,000 senior deduction for filers who are 65 and older, and deductions for qualified tips, qualified overtime compensation and auto loan interest. These all have AGI thresholds that are aimed at preventing individuals with higher income levels from using these breaks. A higher AGI could also impact your ability to deduct medical expenses if you itemize on Schedule A.

For Medicare recipients, the additional income from a Roth conversion can trigger higher Medicare premiums. Individuals with 2023 modified AGIs over $212,000 for joint filers and $106,000 for single filers pay a monthly surcharge in 2025 for Parts B and D coverage on top of their regular premiums. These figures will be somewhat higher for 2025 modified AGI used for figuring 2027 monthly Medicare premium surcharges. Income from converting from a traditional IRA to a Roth IRA is included in the calculation of modified AGI.

4. Nonspouse beneficiary of inherited IRA

Question: Can a nonspouse beneficiary of an inherited IRA convert it to a Roth IRA?

Joy Taylor: No. A non-spouse beneficiary of an inherited traditional IRA cannot convert it to a Roth IRA. The beneficiary can, however, take taxable distributions from the traditional IRA over time and contribute the post-tax money to a Roth IRA, subject to the Roth IRA annual contribution limits, provided the person has sufficient taxable compensation and the person’s AGI in the year of the contribution doesn’t exceed certain limits.

For 2025, the Roth IRA contribution limit is $7,000, $8,000 for individuals age 50 and older. The AGI limits start at $150,000 for single filers and $236,000 for joint filers.

5. Five-Year rules for Roth IRAs

Question: I understand that to withdraw money from a Roth IRA without paying tax or a penalty on the earnings, the account owner must have had the money in the Roth IRA for at least five years and be age 59½ or older. My question relates to when the five-year clock starts when contributions are made over several years. Also, do the rules differ for Roth IRA conversions?

Joy Taylor: There are actually two five-year rules that apply to Roth IRAs. The first applies to Roth IRA contributions, including rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the owner first contributed to a Roth IRA. For this first five-year rule, the five-year clock starts the first time that money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t start for later Roth contributions, conversions, or for newly opened Roth IRA accounts.

The second five-year rule applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. That’s because the 10% early withdrawal penalty doesn’t hit Roth IRA conversions. This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pre-tax income from traditional IRAs to a Roth. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above. For instance, if you do multiple Roth IRA conversions, there will be multiple five-year time periods, even if each conversion is done into the same Roth IRA account that you have owned for years.

For more information on the two Roth IRA five-year rules, see what to know about the five-year rules for Roth IRAs.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the “One Big Beautiful Bill Act,” charitable contributions and more. We will answer these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, August 1: Tax Questions on Standard Deductions

joy.taylor@futurenet.com (Joy Taylor) — Fri, 01 Aug 2025 12:14:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on claiming standard deductions on your tax return. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What are the new amounts for 2025?

Question: Did the “One Big Beautiful Bill” (OBBB) make any changes to standard deductions?
Joy Taylor: Yes, the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction amounts, but only on a temporary basis through the end of 2025. The recently enacted OBBB not only made permanent the 2017 enhancements to the standard deduction but also further increased the amounts. Beginning with 2025 tax returns that taxpayers file next year, standard deduction amounts increase by $1,500 for joint filers, $750 for single filers and $1,125 for head-of-household filers. For 2025 returns, the standard deductions are:

$31,500 for joint filers (plus $1,600 for each spouse 65 or older)
$15,750 for single filers (plus $2,000 if 65 or older)
$23,625 for head-of-household filers (plus $2,000 if 65 or older)
$15,750 for married-filing-separately filers (plus $2,000 if 65 or older)
Blind people get an extra $1,600 on joint returns and $2,000 on single or head-of-household returns

2. Can I claim the $6,000 senior deduction?

Question: I am married, and my spouse and I are both over age 65. We don’t itemize on Schedule A of the Form 1040. Can we claim the new $6,000 senior deduction and the standard deduction on our 2025 Form 1040?

Joy Taylor: Yes, provided that your modified adjusted income doesn’t exceed the threshold for claiming the senior deduction. The OBBB provides for a new senior tax deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. This is a temporary write-off, first taking effect on 2025 tax returns that you file next year and ending after 2028.

Not every senior qualifies. The deduction begins to phase out at modified adjusted gross incomes (or modified AGI) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers. Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa. Also, each eligible spouse must have a Social Security number to claim this write-off.

On your 2025 jointly filed Form 1040, you will be able to claim the standard deduction of $34,700 ($31,500 plus $3,200 since both of you are 65 or older) and, provided your modified AGI doesn’t exceed the monetary thresholds discussed above, the $12,000 senior deduction ($6,000 for each of you since you are both 65 or older).

3. Is there an income threshold for standard deductions?

Question: I know there is a modified AGI threshold for determining eligibility for the new $6,000 senior deduction. Is there a similar limitation for claiming standard deductions?

Joy Taylor: No. In answer 2 above, I explained that the senior deduction begins to phase out at modified AGI above $150,000 on joint returns and $75,000 on single and head-of-household returns. The standard deductions are not subject to a modified AGI threshold. So upper-income taxpayers can claim standard deductions without worrying about the write-off being phased out based on income levels.

4. Itemizing on Schedule A

Question: I always itemize deductions on Schedule A when I file my Form 1040. Can I also claim the higher standard deduction for 2025?

Joy Taylor: No. You cannot take the standard deduction if you are itemizing deductions on Schedule A. It’s an either/or situation – either you claim the standard deduction OR you itemize deductions on Schedule A. You can’t do both.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on tax changes in the OBBB. In this column, we have addressed questions on changes to standard deductions. We will answer more queries on the OBBB in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, July 25: Questions on Four New Tax Deductions

joy.taylor@futurenet.com (Joy Taylor) — Fri, 25 Jul 2025 16:30:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on four new tax deductions in the "One Big Beautiful Bill." (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Do tax breaks begin in 2025?

Question: Can taxpayers claim the new senior deduction and the write-offs for tips, overtime and interest on automobile loans, on their 2025 tax returns?

Joy Taylor: Yes, these tax breaks are available for 2025. The so-called “One Big Beautiful Bill” (OBBB) includes four brand new temporary deductions that eligible individuals can claim on their tax returns, depending on their modified adjusted gross income. These are the deductions for up to $25,000 of qualified tips, $12,500 ($25,000 on joint returns) of qualified overtime compensation, $10,000 of interest paid on loans to buy a new vehicle after 2024, and the $6,000 senior tax deduction for each person who is age 65 or older. These write-offs are temporary, first taking effect on 2025 tax returns that you file next year and ending after 2028. They are available to taxpayers who itemize on Schedule A of the Form 1040 and to filers who claim the standard deduction.

2. Are deductions above, or below-the-line?

Question: Are the new senior deduction and the write-offs for tips, overtime and interest on automobile loans “above-the-line” or “below-the-line?”

Joy Taylor: These four deductions, which are available to itemizers and to taxpayers who claim standard deductions, are “below-the-line” deductions, meaning they are subtracted from adjusted gross income (AGI) to arrive at taxable income.

3. Modified AGI and the new tax breaks

Question: The new senior deduction, the $40,000 cap on state and local tax (SALT) deductions, and the deductions for tips, overtime and interest on automobile loans all begin to phase out once modified adjusted gross income (“modified AGI”) exceeds a certain amount. What is the definition of modified AGI for these new tax breaks?

Joy Taylor: Modified AGI is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of modified AGI often differs, depending on what it is used for.

For purposes of the modified AGI thresholds for taking the five above-described deductions in the OBBB, you begin with your adjusted gross income on line 11 of your Form 1040 and add any foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

Note that these tax breaks have different modified AGI threshold amounts:

The $40,000 cap on state and local tax deductions claimed on Schedule A of the Form 1040 begins to phase out at modified AGI over $500,000 ($250,000 for married couples who file separate returns).
The $6,000 deduction for people age 65 and older ($12,000 on joint returns if each spouse is 65 or older) begins to phase out at modified AGI over $150,000 on joint returns and $75,000 on other returns.
The deductions for up to $25,000 of qualified tips and up to $12,500 ($25,000 on joint returns) of qualified overtime compensation begin to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns.
The deduction for up to $10,000 of interest paid on automobile loans begins to phase out at modified AGI over $200,000 on joint returns and $100,000 on other returns.

For more information, see The Many Definitions of Modified Adjusted Gross Income (MAGI)

4. How does the deduction for overtime pay work?

Question: I have heard conflicting reports about the new deduction for overtime pay. What pay can be deducted? Is it the entire amount of overtime pay or just the overtime premium pay? For example, if someone is paid time-and-one-half for overtime, can the taxpayer deduct the full time-and-one-half pay or only the 50% extra amount?

Joy Taylor: The OBBB offers a brand-new deduction for up to $12,500 ($25,000 on joint returns) of qualified overtime compensation. This tax break is available for eligible taxpayers who claim the standard deduction and for those who itemize on Schedule A of the Form 1040. It is a temporary deduction, first taking effect on 2025 tax returns filed next year and ending after 2028. The write-off begins to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns.

The new statute defines the term “qualified overtime compensation” as overtime paid to an individual under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate at which the individual is employed. So that means only the portion above the worker's regular rate qualifies for the deduction (meaning the extra 50% for employees who get one-and-one-half their regular pay rate for overtime pay). Employers must report overtime pay on Form W-2 (or Form 1099 for contractors).

This new tax break requires guidance from the IRS, and it is expected that the guidance will describe in more detail exactly what pay is considered qualified overtime compensation. In the meantime, I have included below an excerpt from a report by the staff of the bipartisan congressional Joint Committee on Taxation, that describes the Fair Labor Standards Act of 1938 for this purpose.

The Fair Labor Standards Act of 1938 (“FLSA” or the “Act”) provides for the payment of overtime pay. Under present law, employers generally must pay covered, non-exempt employees at least one-and-a-half times their “regular rate” of pay for hours worked over 40 hours a week at a given job (“overtime compensation”). The amount of overtime pay is based on the employee’s regular rate of pay and the number of hours worked in a workweek. Because earnings may be determined on a piece-rate, salary, commission, or some other basis and the FLSA does not provide for how work hours are scheduled, the determination of the regular rate of pay is based upon the actual facts of the individual’s job and work schedule (as well as certain other rules) and is calculated by dividing the total pay for employment (except for certain statutory exclusions such as the premium portion of overtime compensation) in any workweek by the total number of hours actually worked. The regular rate of pay includes all remuneration for employment, except certain payments excluded by the Act. The FLSA covers employees and enterprises engaged in interstate commerce. The FLSA covers most, but not all, private and public sector employees. There are a number of exemptions from the overtime requirements, including a broad exemption for executive, administrative, professional, computer and outside sales employees that narrows the individuals who are eligible to receive overtime compensation.

About Ask the Editor, Tax Edition

We have already received many questions from readers on tax changes in the OBBB. In this column, we have addressed questions on four new tax breaks for individuals. We will answer more queries on the OBBB in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, July 18: Questions on the $6,000 Senior Deduction

joy.taylor@futurenet.com (Joy Taylor) — Fri, 18 Jul 2025 14:07:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the new $6,000 deduction for taxpayers 65 and older. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

Question: I am retired and receive monthly Social Security benefits. I heard that the newly enacted so-called “One Big Beautiful Bill” (OBBB) eliminates federal income tax on Social Security benefits. Is that accurate?

Joy Taylor: No, the OBBB doesn’t make Social Security benefits fully tax-free. Many Social Security recipients now pay federal income tax on up to 85% of their benefits, depending on their provisional income. President Trump promised to end the tax. But the process that Republican lawmakers used to pass the OBBB while circumventing the 60-vote filibuster rule in the Senate didn’t allow this income tax change to Social Security benefits. So lawmakers found an alternative means of tax relief for seniors in the OBBB.

There is now a new senior tax deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. This deduction is temporary, first taking effect on 2025 tax returns filed next year, and ending after 2028.

Not every senior will qualify. The deduction begins to phase out at modified adjusted gross incomes (or modified AGIs) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers. Also, each eligible spouse must have a Social Security number to claim this write-off.

2. How to Itemize on Schedule A

Question: I itemize deductions on Schedule A of the Form 1040 every year instead of claiming standard deductions. Can I take the $6,000 senior deduction even through I itemize?

Joy Taylor: Yes, the deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. I am guessing that the IRS will add another line to the 2025 Form 1040 after the line for standard deductions to account for this new senior deduction.

Question: My wife and I are both retired federal employees, and we are older than 65. We receive a Civil Service Retirement System pension, but we do not receive Social Security benefits. Can we claim the $6,000 senior deduction on our 2025 Form 1040 even though we do not get Social Security benefits?

Joy Taylor: Yes, you would be able to claim the $6,000 senior deduction (per spouse) on your 2025 Form 1040, subject to the modified AGI phaseouts discussed in Question 1. Since you are filing a joint return with your wife, and you are both 65 or older, you can deduct $12,000. You do not have to receive Social Security benefits to take the deduction.

4. Modified Adjusted Gross Income

Question: I am married and file a joint tax return. I know that the $6,000 senior deduction for filers age 65 and older begins to phase out at modified adjusted gross incomes over $150,000 for joint filers. What is modified adjusted gross income?

Joy Taylor: Modified adjusted gross income (or modified AGI) is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of modified AGI often differs, depending on what it is used for.

To calculate modified AGI for purposes of the income threshold for taking the $6,000 senior deduction, you begin with your adjusted gross income on line 11 of your Form 1040 and add any foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

About Ask the Editor, Tax Edition

We have already received many questions from readers on tax changes in the OBBB. In this column, we have addressed questions on the new $6,000 deduction for taxpayers who are age 65 and older. We will answer more queries on the OBBB in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, July 17: Tax Questions on the New Tax Law

joy.taylor@futurenet.com (Joy Taylor) — Fri, 11 Jul 2025 19:01:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the new tax law. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Effective Date of Tax Changes

Question: Are the tax provisions in the so-called “One Big Beautiful Bill Act” (OBBB) retroactive to Jan. 1, 2025, or do they start in 2026?

Joy Taylor: The new law permanently extends most of the tax provisions in the 2017 Tax Cuts and Jobs Act that were slated to expire on December 31 and enhances some of them, provides brand new tax breaks, repeals several clean-energy credits in the 2022 Inflation Reduction Act, and more. Many of the changes begin in 2025, and others take effect next year.

Here are several examples of tax changes that take effect beginning in 2025:

Higher standard deductions.
The $6,000 bonus deduction for seniors.
The bigger child tax credit.
The $40,000 cap on deducting state and local taxes on Schedule A of the Form 1040.
The new tax deductions for tip income, overtime pay and auto loan interest.
100% first-year bonus depreciation for business assets.
And the higher “Section 179” expensing limit for business assets.

Here are some examples of tax changes that are scheduled to begin in 2026:

The new $15 million lifetime estate and gift tax exemption.
The higher child and dependent care credit.
A new above-the-line deduction of up to $1,000 ($2,000 on joint returns) for charitable cash contributions.
And a couple of haircuts for taxpayers who itemize deductions on Schedule A of the 1040.

2. Tax Credit for Solar Panels on Home

Question: I am thinking of installing solar panels on my primary home. Can I still get a federal income tax credit for this?

Joy Taylor: Yes, but the project must be completed by December 31 at the latest. The residential clean-energy credit equals 30% of the cost of materials and installation of alternative energy systems (such as solar panels) that you install in your home. The OBBB ends the tax break for post-2025 years.

Also repealed after this year is the smaller energy-efficient home improvement credit for homeowners who make smaller energy-saving purchases, such as for efficient central air-conditioning systems, water heaters, heat pumps, exterior doors, and windows. So if you’re thinking of making any of these energy-saving upgrades to your home, you’ll have to pay for the upgrades and complete them by December 31, 2025, to ensure a tax credit.

3. Interest on Auto Loans

Question: I bought a new car earlier this year, and I took out a loan to finance the purchase. Will I be able to deduct the interest that I pay this year on my 2025 tax return that I file next year?

Joy Taylor: It depends. The OBBB allows individuals who buy a new vehicle (car, minivan, SUV, van, pickup truck or motorcycle) for personal use after 2024 to deduct in each of 2025 through 2028 up to $10,000 of interest that they pay on their vehicle loans. This new car loan interest deduction is an above-the-line deduction, meaning it is available to taxpayers who take the standard deduction and to those who itemize on Schedule A of the 1040. The deduction begins to phase out at modified adjusted gross incomes over $200,000 for joint filers and $100,000 for other filers, and ends at modified AGIs over $250,000 for joint filers and $150,000 for others. Additionally, the vehicle’s final assembly must occur in the U.S.

4. Name Change

Question: I heard the newly passed tax law that President Trump signed on July 4 is no longer named the “One Big Beautiful Bill Act.” Why did the name change?

Joy Taylor: The short title of the new law was originally the “One Big Beautiful Bill Act.” However, shortly before the Senate voted on its version of the legislation, Senate Minority Leader Chuck Schumer (D-NY) argued that the title of the bill violated the technical budget reconciliation rules that Senate Republicans were using to pass the bill on a simple majority vote in the upper chamber. The short title was then struck from the bill prior to the Senate vote. The full title of the law is “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14.” Unfortunately, this doesn’t roll off the tongue quite as easily as the “One Big Beautiful Bill Act.” So you will see many people, including myself, continue to refer to the law as the “One Big Beautiful Bill.”

About Ask the Editor, Tax Edition

We have already received many questions from readers on tax changes in the new “One Big Beautiful Bill Act.” We’ve addressed a few here, and we will answer more of these queries in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, July 4: Tax Questions on Inherited IRAs

joy.taylor@futurenet.com (Joy Taylor) — Sat, 05 Jul 2025 14:02:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on inherited IRAs. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. 10-Year Cleanout Rule

Question: I just inherited a traditional IRA from my aunt. I heard there is a 10-year distribution rule. How does this work?

Joy Taylor: Before 2020, deceased owners of IRAs could leave their accounts to their children, grandchildren or other individual beneficiaries, and those heirs could stretch required minimum distributions (RMDs) from inherited traditional IRAs over their own lifetimes, thus allowing the funds in the accounts to grow tax-free for decades. Congress saw this as a loophole for the rich, and in the 2019 SECURE Act legislation curtailed the break for most non-spousal beneficiaries.

For most non-spousal IRAs inherited after 2019, the IRA funds must be distributed to the beneficiary within 10 years of the owner’s death. So, if an IRA owner dies in February 2025, the beneficiary must clean out the IRA no later than December 31, 2035. There are exceptions for beneficiaries who are surviving spouses or minor children (until age 21) of the account owner, chronically ill or disabled, or not more than 10 years younger than the deceased IRA owner.

If an IRA owner dies before his or her beginning RMD date, and the beneficiary is subject to the 10-year cleanout rule, the beneficiary needn’t take a minimum distribution each year. The beneficiary can immediately cash out, opt to wait until year 10 to get the money, get yearly distributions, or skip years, provided the IRA is fully depleted by the end of the 10-year period.

If an IRA owner dies on or after his or her RMD start date, then the beneficiary must withdraw, at a minimum, annual RMDs from the inherited IRA during the 10-year period, generally beginning with the year after the original owner died, and then fully deplete the IRA by year 10 at the latest. In this situation, the beneficiary generally figures annual RMDs based on his or her own life expectancy, so the younger the beneficiary, the smaller the yearly RMD amounts.

There is relief if the IRA owner died in 2020, 2021, 2022 or 2023. Beneficiaries of IRAs in which the original owner was already subject to RMDs won’t be penalized for not taking distributions in 2021-2024. They needn’t make up for the missed distribution. But they must take an RMD starting in 2025.

2. Inherited Roth IRA

Question: How does the 10-year rule for inherited IRAs apply to inherited Roth IRAs?

Joy Taylor: Similar to the rules for traditional IRAs, many nonspousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death. But the money is tax-free to them. Also, because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roth IRAs needn’t worry about whether the original account owner died before or after the starting date for taking RMDs. These beneficiaries can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years or get annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

3. IRA Inherited Before 2020

Question: I inherited a traditional IRA from my mom in 2017. Does the 10-year cleanout rule apply to me?

Joy Taylor: No. The 10-year cleanout rule applies only to IRAs inherited after 2019, meaning the original IRA owner died in 2020 or later. So you can still do a “stretch IRA,” meaning you can stretch RMDs over your lifetime.

4. IRA Inherited by a Surviving Spouse

Question: In 2022, a 40-year-old woman inherited her late husband’s IRA when he died at age 52. She elected to treat the IRA as an inherited IRA, rather than treating it as her own IRA. Is the surviving spouse subject to the 10-year cleanout rule?

Joy Taylor: It is my understanding that a surviving spouse who elects to treat an IRA as an inherited IRA would not be required to use the 10-year rule to deplete the account. So the woman can stretch RMDs over her lifetime.

5. IRA Beneficiary is Older than the Deceased Owner

Question: A 52-year-old woman passed away in early 2025 and left her traditional IRA to her 54-year-old brother. Does he have to liquidate the IRA within 10 years? Also, can he make withdrawals from the IRA before he turns 59½ without having to pay the 10% early-withdrawal penalty?

Joy Taylor: The 10-year cleanout rule on inherited IRAs doesn’t apply in this case. That’s because the beneficiary was not more than 10 years younger than his sister. So he is considered an eligible designated beneficiary and can stretch annual distributions over his lifetime. He will be subject to regular income tax on the withdrawals, but he won’t have to pay the 10% penalty on pre-age-59½ distributions.

About Ask the Editor, Tax Edition

We have already received many questions from readers on topics related to IRS online accounts, tax credits for buying an electric vehicle and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Ask the Editor, June 27: Tax Questions on Disaster Losses, IRAs

joy.taylor@futurenet.com (Joy Taylor) — Fri, 27 Jun 2025 15:02:00 +0000

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on paper checks, hurricane deductions, IRAs and timeshare losses (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. The IRS and Paper Checks

Question: I heard that the IRS will no longer accept paper checks from taxpayers after September 30. Is that accurate?

Joy Taylor: Yes and no. President Trump signed an executive order earlier this year mandating that the Treasury Department get rid of paper checks for recipients of benefits, tax refunds and other payments, effective October 1. He is ordering all federal departments and agencies to use electronic funds transfers, including direct deposit, prepaid card accounts and other digital payment options. That means that after September 30, the IRS should no longer be sending out tax refunds in the form of paper checks. There will be limited exceptions.

That executive order also discusses prohibiting people from mailing paper checks to the government, such as when a taxpayer sends in a tax payment via paper check to the IRS. However, it doesn’t appear that the September 30 deadline applies to government receipts, as it does to government disbursements. Instead, the White House executive order doesn’t set a date, but uses the phrase “as soon as practicable” for this purpose.

2. Traditional IRA and Roth IRAs

Question: Can an individual have a traditional IRA and a Roth IRA at the same time, and can they make contributions to both accounts in the same year?

Joy Taylor: Yes, an individual may have a traditional IRA and a Roth IRA at the same time, and the owner can make contributions to both in the same year. However, the aggregate amount of contributions to those IRAs (traditional and Roth) in a year is limited. For 2025, the IRA contribution limit is $7,000 ($8,000 if you are 50 or older). For example, if you are 55 and contribute $3,000 to a traditional IRA in 2025, you can only contribute up to $5,000 to a Roth IRA in 2025.

Note that you must also have compensation, such as wages or self-employment earnings. And there is an income ceiling on making contributions to a Roth IRA. For 2025, the ability to make contributions to a Roth IRA phases out at adjusted gross incomes of $236,000 to $246,000 for joint filers and $150,000 to $165,000 for single filers. This income ceiling doesn't apply to contributions to a traditional IRA.

3. Prior-Year Hurricane Losses

Question: I live in Florida, and in 2022, my home suffered serious damage from Hurricane Ian. I’ve heard the government has recently changed the deduction for disaster losses. But I already filed my 2022 tax return in early 2023. How can I take advantage of this change?

Joy Taylor: Personal casualty losses can be deducted to the extent the losses are attributable to federally declared disasters, such as hurricanes, earthquakes, wildfires, blizzards or flooding, that affect a wide area. Individuals can deduct personal losses on their Form 1040 to the extent not reimbursed by insurance. Your loss is equal to the smaller of the damaged property’s adjusted basis or decline in value, less any insurance proceeds you received or expect to receive.

Legislation passed by Congress last year has tax easings similar to those given to victims of federally declared disasters in 2018-2020. The relief generally applies to disasters that took place in 2021-2024. This would include damage to your home from Hurricane Ian. The law lets individuals deduct personal disaster losses even if they don’t itemize on Schedule A. You can write off uninsured personal losses in excess of a $500 threshold without regard to the "10% of adjusted gross income" offset that generally applies to disaster loss deductions. This net loss is treated as an additional standard deduction for nonitemizers.

Since you have already filed your 2022 Form 1040, you can amend it to take the more generous disaster loss deduction by filing Form 1040-X. Note that you generally have three years from the date you filed your original return to file Form 1040-X to amend your return. If you filed your original return before the April 15 due date, then you have three years from the original April 15 due date to file an amended return. For example, if you filed your 2022 return on March 24, 2023, you have until April 15, 2026, to amend it. When amending your return, you would use Form 4684 to calculate the loss. Follow the instructions on Form 4684 for reporting a “qualified disaster loss.”

4. Selling a Timeshare

Question: I own a timeshare, and I am thinking of selling it. Will I have to pay federal income tax on the sale?

Joy Taylor: Most people who sell a timeshare sell it at a loss. Losses from sales of timeshares held for personal use are nondeductible. If you’re one of the lucky few that sells a timeshare at a profit, you will have capital gain equal to the sales price less your tax basis in the timeshare. Different tax rules apply to sales of timeshares held for rental or mixed personal/rental use.

About Ask the Editor, Tax Edition

We have already received many questions from readers on topics related to inherited IRAs, energy upgrades made to a home and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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3. Decedent's final RMD from a traditional IRA

4. Qualified charitable distribution from an inherited IRA

5. 10-year clean-out rule for inherited Roth IRAs

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Ask the Tax Editor, April 24: How Can I Resolve My IRS Tax Debt?

1. IRS alternatives for resolving tax debt

2. Should I submit an offer in compromise?

3. Avoid offer-in-compromise "mills"

4. The IRS used my refund to offset taxes I owed

About Ask the Editor, Tax Edition

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Ask the Tax Editor, April 17: Questions on Tax Refunds and Penalties

1. Erroneous bank account information for tax refund

2. Refunds by paper check delayed

3. How the IRS calculates the underpayment penalty

4. First-time penalty abatement

About Ask the Editor, Tax Edition

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Ask the Tax Editor, April 10: Questions on Selling a Home

1. Home-sale exclusion

2. Calculating tax basis in a home

3. Selling a duplex

4. Inheriting a home