There have been some Tax Law changes that may impact your 2022 tax return.  Please review the following changes and I encourage you to contact me if you want to discuss any of these matters.  I will make sure I am available if you have any issues as you gather your tax documents for next year.

Expansion & Changes of 529 Plans

Amounts paid for fees, books, supplies and equipment required for the student beneficiary in a Certified Apprenticeship Program as well as Elementary or Post-Secondary Schools will be allowed as qualified educational expenses paid from a 529 Plan without triggering income inclusion.  Tax-free distributions are limited to $10,000 per student and per calendar year.  The earnings portion of the withdrawals will also grow tax-free. Also, if a student receives a scholarship the amount of the award may be withdrawn from the 529 Plan without an additional 10% federal tax on earnings.  You can also use 529 Plans to fund continuing education if you are age 18 or older.

VA Tax Law Changes

The State standard deduction has doubled to $8,000(single) & $16,000(joint) beginning  January 1, 2022.  Effective in July 2022 VA taxpayers will receive tax rebates of up to $250(Single) and $500(Joint).  The rebates will offset any VA Tax liabilities after deductions & credits on your 2022 tax return.

Energy-Efficient Home Improvement Credit

Individuals are no longer subject to lifetime credit limits.  The limits are now annual so the taxpayer can claim a credit every year.  The limits are larger too because you can get up to $3,200 in total credits.  $1,200 for most Qualified Property Improvements and $2,200 for heat pump and heat pump water heaters.  Roofs no longer Qualify.   A taxpayer’s Residential home has been redefined. Now the home used by the taxpayer as a residence does not necessarily have to be their principal residence such as a second home.

IRA Distributions Rule Changes for Non-spouse

Non-Eligible Beneficiaries may take distributions over 10 years but will pay ordinary tax if not held for 5 years.  RMDs are not required to be made, however, 100% of the funds must be withdrawn within 10 years. Conversely, Eligible Spouse Beneficiaries and electing eligible designated beneficiaries can take the RMDs over their life expectancy.   The 5-year distribution rule is required to be used by Non-designated beneficiaries who are beneficiaries that are not designated by the participant.

Gift Tax Annual Exclusion

Gift Tax Annual Exclusion is increased to $16,000 per doner and $32,000 (Joint doners) for 2022-23.  You must have a present interest in the property given for which there is an unrestricted right to use or possess the property donated. Qualified transfers for tuition and medical expenses can be made in lieu of property transfers.  Gifts that exceed $16,000 to a non-spouse recipient is considered a taxable gift.  Taxable gifts will reduce the donor’s $12,640,000 lifetime estate tax exclusion but the donor is required to file a gift tax return in the year of the gift.

Backdoor Roth IRAs Contributions

If your income exceeds the threshold that prevents you from making a  Roth Contribution for 2022 the taxpayer can elect to bypass income limitations by: (1) making a Traditional Non-deductible IRA contribution and then; (2) converting it into a Roth IRA account soon after the original contribution was made.  There are no income limitations on converting a traditional IRA to a Roth.

Early Retirement Distribution Exception (SEPP)

This is a good strategy to use to make retirement distributions prior to age 59 1/2 by making periodic distributions that will avoid the 10% early distribution penalty.  If structured properly you can take distributions from various retirement accounts by using life expectancy tables and a chosen interest rate.  Under this method, the annual payment is determined once for the year and the annual payments must remain the same for succeeding years thereafter.

QCD Transfers must be made before the end of the year

Both the taxpayer and the spouse over age 70 1/2 can each transfer $100,000 to a qualified charity and if you are age 72 the transfers will count towards your RMD distribution.  The accounts must be set up by an IRA Trustee before year-end and are required to be paid directly from the trustee account to the charitable organization.  The QCDs are required to be reported on your tax return and a written acknowledgment is required from the charitable organizations.

Clean Electric Vehicles changes

You can receive up to $7,000 in tax credits for purchasing a new electric vehicle after 8-16-22. The amount of the tax credit did not change; however, the credit is available only for qualifying electric vehicles for which final assembly occurred in North America.  You may claim the EV credit based on the rules that were in effect before August 16, 2022.   However, the final assembly requirement does not apply to EVs purchased before 8-16-22.

Sale of Principle Residence Re: Gain Exclusion

If you do not meet the 2-year ownership and use test, or you have already excluded gain from the sale of another home during the 2-year period prior to the sale of a current home, you may claim an exclusion on the sale of the home.  The primary reason for the sale must be due to the following:  1) A change in place of employment for a qualified owner; 2) The health of a qualified owner or family member;   3) Unforeseen circumstances such as involuntary conversion, death of an owner or family member, natural or accidental disasters and divorce or legal separation.  The IRS has been providing more latitude to meet these Safe Harbor events under the current economic environment.