The Foreign Service Journal, February 2013

THE FOREIGN SERVICE JOURNAL | FEBRUARY 2013 43 AFSA NEWS for IRS scrutiny. Car rental, mileage and other unreimbursed travel expenses, including park- ing fees and tolls, may be deducted. The rate for business miles driven is 55.5 cents for 2012. Those who use this optional mile- age method need not keep detailed records of actual vehicle expenses. They must, however, keep a detailed odometer log to justify the business use of the vehicle and track the percentage of business use. This optional mileage method applies to leased vehicles, as well. Official Residence Expenses Since Oct. 1, 1990, employ- ees who receive official residence expenses have not been allowed to reduce their reportable income by 3.5 percent. The IRS ruling regarding ORE states that “usual expenses,” defined as 3.5 percent of salary, are not deductible. Therefore the only expenses that are deductible are those above the 3.5 percent paid out of pocket. Employees should save receipts for any out-of- pocket expenses associated with their representational duties. These expenses can be deducted as miscella- neous business expenses. Home Ownership Individuals may deduct interest on up to $1 mil- lion of acquisition debt for loans secured by a first and/ or second home. This also includes loans taken out for major home improvements. On home equity loans, inter- est is deductible on up to $100,000, no matter how much the home cost, unless the loan is used for home improvements, in which case the $1 million limit applies. The $100,000 ceiling applies to the total of all home equity loans you may have. The same generally applies to refinancing a mort- gage. Points paid to obtain a refinanced loan cannot be fully deducted the same year, but must be deducted over the life of the loan. It is advisable to save the settle- ment sheet (HUD-1 Form) for documentation in the event your tax return is selected by the IRS for audit. Qualified residences are defined as the taxpayer’s principal residence and one other residence. The second home can be a house, condo, co-op, mobile home or boat, as long as the structure includes basic living accom- modations, including sleep- ing, bathroom and cooking facilities. If the second home is a vacation property that you rent out for fewer than 15 days during the year, the income need not be reported. Rental expenses cannot be claimed either, but all property taxes and mortgage interest may be deducted. Rental of Home Taxpayers who rented out their homes in 2012 can continue to deduct mortgage interest as a rental expense. Also deductible are property management fees, condo fees, depreciation costs, taxes and all other rental expenses. Losses up to $25,000 may be offset against other income, as long as the Modified Adjusted Gross Income does not exceed $100,000 to $150,000 and the taxpayer is actively managing the property. Note that a taxpayer who retains a property manager does not lose this benefit, as this is still considered active management of the property. All passive losses that cannot be deducted currently are carried forward and deducted in the year the property is sold. Irving and Company Certified Public Accountant Specializing in Foreign Service Family Tax Preparation Based in Rockville, Md. (15 minutes fromWashington, D.C.) Scott Irving, CPA, offers affordable rates with more than 15 years of tax experience. • Complete tax & accounting service • Tax planning & strategy • Monthly bookeeping service & review reports • Litigation support work ALL CLIENTS RECEIVE: • CPA-prepared and reviewed returns • Consideration of all deductions and tax credits • Client interviews at your convenience • Available for questions and consults year round Call today for the best rates and service. 15209 Frederick Road., Suite 201 Rockville, MD 20850 Tel: (202) 257-2318, e-mail: sirving@irvingcom.com, Web site: www.irvingcom.com