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Showing posts from November, 2016

Is cash for keys cancellation of debt income?

When a house is foreclosed, or there is a deed in lieu of foreclosure, some mortgage companies make a deal with the owner or tenant. Usually the deal works like this: the owner agrees to leave the property on a certain date and broom swept condition without taking any of the appliances, copper pipes, etc. If the  home was left in the promise condition, the homeowner or tenant will receive a certain stipend from the mortgage company. Sounds good, right?

Nevertheless, the mortgage company than typically issues a 1099 for the cancellation of indebtedness income for the amount of the foreclosure and an additional 1099-MISC for the alleged miscellaneous income and cash for keys. The IRS has taken the position that the cash for keys income as ordinary income and should be taxed. In the case of Bobo vs. Commissioner, the US Tax Court determined that the foreclosure and the additional cash for keys payment were really one transaction. Since in that case, the taxpayer had an actual loss on the…

NJ Ends Urban Enterprise Zones

The New Jersey Division of Taxation announced the end of urban enterprise zones for sales tax:

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The former 3% rate for these urban enterprise zones for sales tax will be changed to the full rate of 6.875% starting January 1, 2017. It is possible that the New Jersey legislature a change this position, but it was part of the negotiated deal by the legislature when it radically increased the New Jersey gasoline tax.

New Jersey Phasing Out NJ Estate Tax

New Jersey has long had the highest state estate tax in the country. Any estate over $675,000 would owe tax to the state of New Jersey. This could be very substantial and was a significant reason for many taxpayers, especially retirees, to move from New Jersey to more tax-advantaged states such as Florida. Tax lawyers, and estate planners, have been arguing for many years that this is really costing New Jersey a lot in revenue and negatively affects the state.

Finally, after years of arguing, the New Jersey legislature passed a bill, signed by Governor Christie, that would reduce the New Jersey estate tax. Beginning January 1, 2017, only estates in excess of $2 million would be subject to the New Jersey estate tax. Starting January 1, 2018, if it is not repealed, the New Jersey estate tax would be eliminated.

There was a lot of political wrangling in order to get this passed. There is a slight reduction in New Jersey sales tax rate, but not the fact that many items are tax New Jersey …