Delores I. Nance, CPA P.C.

About 830,000 taxpayers are having their tax refunds held up due to the move away from paper checks and Democratic leadership on the House Ways and Means Committee is seeking information on what the IRS is doing to expedite the issuance of those refunds.

House Ways and Means Subcommittee on Worker and Family Support Ranking Member Danny Davis (D-Ill.) and Subcommittee on Oversight Ranking Member Terri Sewell (D-Ala.), in a March 9, 2026, letter to IRS Acting Commissioner Scott Bessent, noted that to date 530,000 notices have been sent to individual taxpayers who did not include bank account information on their tax returns and are planning to send another 300,000 notices this week.

“As a result of President Trump’s Executive Order 14247 mandating electronic payments of tax refunds, these taxpayers could face more than a 10-week delay (over 2.5 months) in receiving their refunds by paper check,” the letter states, adding a National Taxpayer Advocate citation stating that more than 10 million individual taxpayers received their refunds by check.

They continued: “Having reviewed the IRS notice and called the IRS phone lines, we learned that there is no simple process for these taxpayers to request an immediate release of their refund by paper check without waiting at least 10 weeks. Effectively, the President, unilaterally through his Executive Order, is causing undue hardship on millions of Americans by delaying their paper refunds for months. This delay is not mandated by the Internal Revenue Code.”

The ranking members ask Bessent a series of questions, including how IRS taxpayers without an online account can apply for a paper check and immediate release of funds; how many notices have been sent and are expected to be released; how many tax payers have exceptions have been successfully filed; and how many paper checks have been mailed to date.

The representatives asked for answers by March 23, 2026.

By Gregory Twachtman, Washington News Editor

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The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2026 and the lease inclusion amounts for business vehicles first leased in 2026.

Luxury Passenger Car Depreciation Caps

The luxury car depreciation caps for a passenger car placed in service in 2026 limit annual depreciation deductions to:

$12,300 for the first year without bonus depreciation
$20,300 for the first year with bonus depreciation
$19,800 for the second year
$11,900 for the third year
$7,160 for the fourth through sixth year

Depreciation Caps for SUVs, Trucks and Vans

The luxury car depreciation caps for a sport utility vehicle, truck, or van placed in service in 2026 are:

$12,300 for the first year without bonus depreciation
$20,300 for the first year with bonus depreciation
$19,800 for the second year
$11,900 for the third year
$7,160 for the fourth through sixth year

Excess Depreciation on Luxury Vehicles

If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.

The annual cap for this excess depreciation is:

$7,160 for passenger cars and
$7,160 for SUVS, trucks, and vans.

Lease Inclusion Amounts for Cars, SUVs, Trucks and Vans

If a vehicle is first leased in 2026, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:

$62,000 for a passenger car, or
$62,000 for an SUV, truck or van.

The 2026 lease inclusion tables provide the lease inclusion amounts for each year of the lease.

The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.

Vehicles Exempt from Depreciation Caps and Lease Inclusion Amounts

The depreciation caps and lease inclusion amounts do not apply to:

cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.

So taxpayers who want to avoid these limits should "think big."

Rev. Proc. 2026-15

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The IRS has released guidance on the withdrawal of an election to be an excepted trade or business for the Code Sec. 163(j) business interest limitation for the 2022, 2023, and 2024 tax year. The election is made by filing an amended income tax return, amended Form 1065, or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitation. The withdrawal allows a taxpayer to make depreciation adjustments or a late election not to deduct the additional first-year depreciation (bonus depreciation) for certain property in light of recent legislative changes.

The IRS has released guidance on the withdrawal of an election to be an excepted trade or business for the Code Sec. 163(j) business interest limitation for the 2022, 2023, and 2024 tax year. The election is made by filing an amended income tax return, amended Form 1065, or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitation. The withdrawal allows a taxpayer to make depreciation adjustments or a late election not to deduct the additional first-year depreciation (bonus depreciation) for certain property in light of recent legislative changes. Guidance is also provided on the early election or revocation of a controlled foreign corporation (CFC) CFC group election.

Background

A taxpayer’s deduction of business interest expenses paid or incurred for the tax year is generally limited under section 163(j) to the taxpayer’s business interest income for that year and 30 percent of the taxpayer’s adjusted taxable income (ATI). The deduction limit does not apply to certain excepted businesses, including an electing real property trade or business, electing farming business, or regulated utility trade or business.

The election applies to the current tax year and all subsequent tax years. The election is irrevocable but may automatically terminate in certain circumstances. An electing real property trade or business or electing farming business that elects out of the section 163(j) limit must depreciate certain property using alternative depreciation system (ADS) and as a result cannot claim bonus depreciation for that property.

Election Withdrawal

An election to be an excepted trade or business for the section 163(j) business interest limit may be withdrawn for the 2022, 2023, and 2024 tax year. The withdrawal is made by attaching a statement to the taxpayer’s amended income tax return, amended Form 1065 , or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitations per the IRS guidance.

A taxpayer that receives an amended Schedule K-1 as a result of an amended return or Form 1065 should similarly file an amended return, amended Form 1065, or AAR with a similar attached statement. If a taxpayer withdraws an election, the taxpayer will be treated as if the election had never been made.

Depreciation Adjustments

A taxpayer that is withdrawing an excepted trade or business interest election under section 163(j) must determine its depreciation deduction and basis for the property that is affected by the withdrawn election in accordance with Code Sec. 168. A taxpayer that makes the withdrawals may make a late election under Code Sec. 168(k)(7) to opt certain property out of bonus depreciation on the same amended Federal income tax return, amended Form 1065, or AAR filed for withdrawing the section 163(j) excepted trade or business election.

CFC Group Election

A taxpayer that is a designated U.S. person may revoke or make a CFC group election without regard to the 60-month limitation of § 1.163(j)-7(e)(5)(ii) for the first specified period of a specified group beginning after December 31, 2024. A taxpayer that chooses to revoke the election or make a new election must follow all procedures specified in the regulation other than the 60-month limit. In addition, the 60-month limitation applies to subsequent specified periods.

Rev. Proc. 2026-17

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Internal Revenue Service CEO Frank Bisignano highlighted the early successes of the tax provisions in the One Big Beautiful Bill Act before the House Ways and Means Committee while defending or deflecting critical commentary from the panel’s Democratic representatives.

In his opening statement during the March 4, 2026, hearing, Bisignano noted that the tax benefit to individuals under these provisions is “estimated to be $220 billion,” noting key aspects like the no tax on tips, no tax on overtime, and the Trump accounts helping to pave the way to the benefits.

He also highlighted the growth of 43 percent in usage of online tools, which he said is coinciding with a decrease in demand for phone service.

“Our goal is for taxpayers is our transformational efforts to create a seamless customer experience where taxpayers can interact with the IRS with the same ease they expect from the private sector,” Bisignano told the committee.

Bisignano during the hearing framed AI simply as a tool in the technology toolbox and stated that he didn’t simply want to “modernize” IRS systems because all that does is lead to future obsolescence, but framed information technology upgrades as “transforming” the systems to be able to evolve with technology, which “will increase compliance and increase simplification.”

He was put on the defensive on the subject of audit rates, with questions suggesting that the agency is not doing its job in terms of auditing high income and other wealthy taxpayers, which will lead to a greater tax gap.

Bisignano tried to interject that there was a $2 billion settlement reached but was not given an opportunity to expand upon the circumstances around the recovery, as Rep. Mike Thompson (D-Ca.) noted that “fewer audits of wealthy tax cheats and more scrutiny of working families” doesn’t build “trust among the American taxpayers.”

In answering a separate question regarding audit rates, he pushed back on the increase or decrease in audit rates, testifying that there has never been a standard audit rate that has been proven to be the right number and it could be more or less than where things are at now.

Bisignano defended the cutting of the National Treasury Employees Union contract, stating that by statute, federal employees already have “greater benefits that any union in the world can provide for their people,” including pay, health, and other benefits that are guaranteed by law. “So they are losing nothing,” he said.

He also defended the elimination of the Direct File program, citing its lack of utilization and its costs to operate the program, while promoting Free File as “well-received” and a well-used and trusted program.

Bisignano avoided any discussion regarding the IRS turning over taxpayer information to the Department of Homeland Security without proper authorization, noting that litigation on this issue was still ongoing. He confirmed that so far, no one has been fired or disciplined for this unauthorized information transmission.

He also would not commit to opening any of the closed Taxpayer Assistance Centers, noting that the current centers were experiencing increased activity, although he did add that there were no plans to close any of the existing centers.

Adoption Credit Update

Bisignano told the committee that the IRS will be implementing a provision that for tax year 2025, carry forward amounts of the adoption credit for prior years are refundable up to $5,000 per qualifying child, “and the IRS is implementing this policy as expeditiously as possible without disrupting the current filing season.”

He said there is will be information on this published “very soon” and that taxpayers “should continue to claim the credit as directed by the current tax forms and instructions during the tax season, since the IRS is pursuing post-filing remedies to solve this issue.”

By Gregory Twachtman, Washington News Editor

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The IRS has finalized regulations to include unmarked vehicles used by firefighters, members of rescue squads, or ambulance crews in the list of “qualified nonpersonal use vehicles” exempt from the IRC §274(d) substantiation requirements. The final rule adopts, with only minor, non-substantive changes, the text of the proposed regulations (NPRM REG-106595- 22) issued on December 3, 2024. The amendments ensure that specially equipped unmarked vehicles are subject to the same tax treatment as other emergency vehicles used by first responders.

Qualified Nonpersonal Use Vehicles

IRC §274(d) requires that taxpayers satisfy additional substantiation requirements when claiming certain business deductions including the business use of an automobile or other means of transportation. A qualified nonpersonal use vehicle is any vehicle that, by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes. Reg. §1.274-5(k)(2)(ii) provides a list of such vehicles, which includes, in part: ambulances; clearly marked police, fire, public safety officer vehicles; and unmarked police vehicles.

Unmarked Emergency Vehicles

Recently, some municipalities have been providing unmarked vehicles to these first responders as a response to an increase in incidents of vandalism and harassment. These unmarked vehicles are typically equipped with special equipment such as lights and sirens, medical emergency equipment, communication radios, and personal protective equipment. Most fire and emergency response departments retain the title to these unmarked vehicles and have policies that limit the use of the vehicles for personal purposes.

The intent and use of these unmarked vehicles meet the definition of qualified nonpersonal vehicles provided in IRC §274(i). However, prior to the amendments, fire and emergency response departments had to substantiate the time the first responders spent using these unmarked vehicles for work related purposes. Personal use of these vehicles, no matter how minute, was required to be included in that employee’s income.

In addition to adding unmarked rescue to the list of qualified nonpersonal use vehicles provided in Reg. §1.274-5(k)(2)(ii), the amendments add Reg. §1.274-5(k)(7) which provides the definitions for “unmarked firefighter, rescue squad or ambulance crew vehicles”, “firefighter,” and “member of a rescue squad or ambulance crew.”

The amendments apply to tax years beginning on or after the date the final regulations are published in the Federal Register. However, taxpayers may rely on the guidance provided in the proposed regulations until that date.

T.D. 10043

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Proposed regulations under Code Sec. 530A, providing guidance on making an election to open a Trump account, and under Code Sec. 6434, relating to the Trump account contribution pilot program, have been issued. Comments are requested and should be submitted via the Federal eRulemaking Portal (indicate IRS and REG-117270-25 for comments related to Code Sec. 530A or IRS and REG-117002-25 for comments related to Code Sec. 6434). The proposed regulations are proposed to apply on or after January 1, 2026.

Background

Code Sec. 530A, as added by the One Big Beautiful Bill Act (P.L. 119-21) provides for the creation of a Trump account for an eligible individual. A Trump account is subject to certain special rules that do not apply to other types of individual retirement accounts during the growth period, which is the period that begins when an initial Trump account is established and ends on December 31st of the year in which the account beneficiary of the initial Trump account reaches the age of 17. Proposed regulations on the special rules that apply during and after the growth period are reserved and will be proposed at a later date.

In addition, Code Sec. 6434 was added, which provides for a one-time $1,000 pilot program contribution to the Trump account of an eligible child with respect to whom an election is made. The qualifications to be an eligible child are less restrictive than those to be an eligible individual. Finally, Code Sec. 128 allows for employer contributions to a Trump account of an employee or a dependent of an employee. These contributions must be made in accordance with the rules of a Code Sec. 128(c) Trump account contribution program. Guidance on this section is expected to be released in the future.

General Requirements and Election to Open an Account

A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. An individual can only have one Trump account containing funds in existence at a time. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A (b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.

An election to open an account can be made by either an authorized individual or by the Secretary. If a pilot program contribution election is made at the same as the election to open the initial account, the authorized individual would be the individual authorized to make (and making) the pilot program contribution election. If a pilot contribution program election is not being made, Prop. Reg. §1.530A-1(c)(1)(i)(B) provides an ordering rule to determine who the authorized individual is. In order of priority, the authorized individual would be a legal guardian, parent, adult sibling, or grandparent of the eligible individual. The election to open an initial Trump account is made on or before December 31st of the calendar year in which the eligible individual attains age 18. The election is made on Form 4547 or through an electronic application or webpage made available by the Secretary.

Contribution Pilot Program

A pilot program election with respect to an eligible child must be made by a pilot program-electing individual so that the Secretary can make the $1,000 pilot program contribution into the Trump account of en eligible child. An eligible child is a pilot program-electing individual's anticipated qualifying child, as defined in Code Sec. 152(c), for the tax year of the pilot program-electing individual in which the pilot program election is made; is born in 2025, 2026, 2027, or 2028; is a U.S. citizen; has been issued a social security number; and with respect to which no prior pilot program election has been made by any individual and processed by the Secretary.

A pilot program election is made with respect to the eligible child's "special taxable year" (defined in Prop. Reg. §301.6434-1(c)(1)), instead of with respect to any calendar based tax year for the eligible child's federal income tax liability. Once an election is processed, the eligible child is treated as making a $1,000 payment against a federal income tax liability for the eligible child's special taxable year, resulting in a $1,000 overpayment. The overpayment is then refunded by the Secretary as a pilot program contribution to the eligible child's Trump account. The overpayment is not refunded unless the eligible child has an established Trump account.

An election may be made on the day that a child becomes eligible, and the last day to make the election is December 31st of the calendar year in which the eligible child attains age 17. In addition, only the first pilot program contribution election processed by the IRS will result in a $1,000 contribution to the eligible child's Trump account. The pilot program contribution election is made on Form 4547.

Proposed Regulations, NPRM REG-117270-25

Proposed Regulations, NPRM REG-117002-25

IR 2026-31

IR 2026-33

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The IRS expects to delay the applicability date of proposed regulations on required minimum distributions (RMDs) until the distribution calendar year that would begin 6 months after the date the regulations are finalized. Specifically, the announcement relates to proposed amendments of Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23 .

Background

Prior to this announcement, provisions under NPRM REG–103529–23 (2024) were proposed to apply for determining RMDs for calendar years beginning on or after January 1, 2025. This ensured the provisions would begin to apply at the same time as final regulations under T.D. 10001 (2024).

Following a request for comments, concerns included difficulty to implement many provisions of future final regulations in a timely manner if the January 1, 2025, applicability date were to be retained in future final regulations.

Future Final Regulations

The IRS expects future final regulations that would amend Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23, to apply to determine RMDs for the distribution calendar year that would begin no earlier than six months after the date that any future final regulations would be issued in the Federal Register. For periods before the applicability date of such future final regulations, taxpayers must continue to apply a reasonable, good-faith interpretation.

Announcement 2026-7

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The IRS has issued a waiver for individuals who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in certain foreign countries prevented them from fulfilling the requirements for the 2025 tax year. Qualified individuals may elect to exclude from gross income their foreign earned income and to exclude or deduct the housing cost amount.

Relief Provided

The IRS, in consultation with the Secretary of State, has determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the following countries, effective from the dates specified: (1) Haiti – January 1, 2025; (2) Ukraine – January 1, 2025; (3) Democratic Republic of the Congo – January 28, 2025; (4) South Sudan – March 7, 2025; (5) Iraq – June 11, 2025; (6) Lebanon – June 22, 2025; and (7) Mali – October 30, 2025. An individual who left any of these countries on or after the respective dates will be treated as a qualified individual for the period during which the individual was a bona fide resident of, or was present in, the country. To qualify for relief, an individual must establish that, but for these adverse conditions, they would have met the requirements of Code Sec. 911(d)(1). Additionally, the waiver does not apply to individuals who first established residency or were physically present in any of these countries after the respective dates listed above. Taxpayers seeking guidance on how to claim this exclusion or file an amended return should refer to the Foreign Earned Income Exclusion section at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion or contact a local IRS office.

Rev. Proc. 2026-16

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In 2013, a new and unique tax will take effect—a 3.8 percent "unearned income Medicare contribution" tax as part of the structure in place to pay for health care reform. The tax will be imposed on the "net investment income" (NII) of individuals, estates, and trusts that exceeds specified thresholds. The tax will generally fall on passive income, but will also apply generally to capital gains from the disposition of property.

Specified thresholds

For an individual, the tax will apply to the lesser of the taxpayer's NII, or the amount of "modified" adjusted gross income (AGI with foreign income added back) above a specified threshold, which is:

$250,000 for married taxpayers filing jointly and a surviving spouse;
$125,000 for married taxpayers filing separately;
$200,000 for single and head of household taxpayers.

Examples. A single taxpayer has modified AGI of $220,000, including NII of $30,000. The tax applies to the lesser of $30,000 or ($220,000 minus $200,000), the specified threshold for single taxpayers. Thus, the tax applies to $20,000.

A single taxpayer has modified AGI of $150,000, including $60,000 of NII. Because the taxpayer's income is below the $200,000 threshold, the taxpayer does not owe the tax, despite having substantial NII.

For an estate or trust, the tax applies to the lesser of undistributed net income, or the excess of AGI over the dollar amount for the highest tax rate bracket for estates and trusts ($11,950 for 2013). Thus, the tax applies to a much lower amount for trusts and estates.

Application of tax

The tax applies to interest, dividends, annuities, royalties, and rents, and capital gains, unless derived from a trade or business. The tax also applies to income and gains from a passive trade or business.

Other items are excluded from NII and from the tax: distributions from IRAs, pensions, 401(k) plans, tax-sheltered annuities, and eligible 457 plans, for example. Items that are totally excluded from gross income, such as distributions from a Roth IRA and interest on tax-exempt bonds, are excluded both from NII and from modified AGI.

The tax does not apply to nonresident aliens, charitable trusts, or corporations.

Tax planning techniques

Taxpayers are concerned about having to pay the tax. One technique for avoiding the tax is to sell off capital gain property in 2012, before the tax applies. This can be particularly useful if the taxpayer is facing a large capital gain from the sale of a principal residence (after taking the $250,000/$500,000 exclusion from income). Older taxpayers who do not want to sell their property may want to consider holding on to appreciated property until death, when the property gets a fair market value basis without being subject to income tax.

The technique of "gain harvesting" may be even more attractive if tax rates increase on dividends, capital gains, and AGI in 2013, with the potential expiration of the Bush-era tax cuts. However, the status of these tax rates will not be determined until after the election, potentially in a lame-duck Congressional session. It is also possible that Congress will simply extend existing tax rates for another year and "punt" the decision until 2013, as tax reform discussions heat up.

Taxpayers may also want to change the source of their income. Investing in tax-exempt bonds will be more attractive, since the interest income does not enter into AGI or NII. Converting a 401(k) account or traditional IRA to a Roth IRA will accomplish the same purpose. Income from a Roth conversion is not net investment income, although the income will increase modified AGI, which may put other income in danger of being subject to the 3.8 percent tax. Increasing deductible or pre-tax contributions to existing retirement plans can also lower income and help the taxpayer stay below the applicable threshold.

Trusts and estates should make a point of distributing their income to their beneficiaries. A trust's NII will be taxed at a low threshold (less than $12,000), while the income received by a beneficiary is taxed only if the much higher $200,000/$250,000 thresholds are exceeded.

Uncertainty

There was some uncertainty about the tax taking effect because of litigation challenging the health care law providing the tax, but a June 2012 Supreme Court decision upheld the law. The application of the tax is also uncertain because the Republican leadership has vowed to pursue repeal of the health care law if the Republicans win the presidency and take control of both houses of Congress in the November 2012 elections. But this is speculative. In the meantime, the Supreme Court decision guarantees that the tax will take effect on January 1, 2013.

These can be difficult decisions. While economic considerations for managing assets and income are important, it also makes sense for a taxpayer to look at the tax impact if the certain asset sales or shifts in investment portfolios are otherwise being considered.

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The Tax Code provides that the IRS generally may not select an individual, partnership, or corporate tax return for audit after a period of three years has expired, dating from the tax return's filing date or due date, whichever is later. For example, if a taxpayer filed his 2011 Form 1040 on February 10, 2012, and the due date for the filing of returns that year was April 17, 2012, then the statute of limitations period ends on April 17, 2015, and not February 10, 2015. On the other hand, if the taxpayer filed his tax return late, on November 10, 2012, and had not obtained an extension of time to file, the statute of limitations period would run from November 10, 2012.

If a taxpayer receives an extension of time to file the return (for example, an automatic six-month extension until October 15), however, the return is considered filed on the actual date of filing rather than the extension date. On the other hand, filing an amended tax return, such as a Form 1040X, however, would generally have no effect on the three-year period if it does not increase tax liability. For example, if the taxpayer filed his tax return on April 17, 2012, subsequently discovered a missing item of deduction, and filed an amended return on May 15, 2012 that did not increase his tax liability, the three-year state of limitations period will still run from April 17, 2012 to April 17, 2015.

For more information on the statute of limitations on tax assessments and any exceptions, please contact our office.

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A remainder interest is the interest you receive in property when a grantor transfers property to a third person for a specified length of time with the provision that you receive full possessory rights at the end of that period. The remainder is "vested" if there are no other requirements you must satisfy in order to receive possession at the end of that period, such as surviving to the end of the term. This intervening period may be for a given number of years, or it may be for the life of the third person. Most often, this situation arises with real estate, although other types of property may be transferred in this fashion as well, such as income-producing property held in trust. The holder of a remainder interest may wish to sell that interest at some point, whether before or after the right to possession has inured.

To determine the amount of gain or loss on the sale of an interest in property, you must first need to know the basis in that property. Generally, the basis of property is either the transferor's basis, if the transferor made a gift of the property while still living, or the fair market value at the time of the transfer if it was a testamentary gift. However, the value of a remainder interest is not the full value of the property, because someone else has an intervening right to its use.

The value of the remainder interest is equal to the undivided value of the property minus the value of the intervening interest. The value of this interest depends on applicable interest rates and the duration of the interest. In the case of a life estate, the duration depends on the age of the recipient and is determined with reference to mortality tables published in the Treasury regulations. The applicable interest rate is specified in Code Sec. 7520 as being 120 percent of the applicable federal rate (AFR) for that month, rounded to the nearest 0.2 percent. You may find these tables at the IRS web site.

IRS Pub. 1457 is known as Actuarial Values Book Aleph and contains tables that express the values of life estates, term interests and remainders. In this publication, you will need to select the appropriate section based on whether the interest is a term for years or a life estate. In each section is a series of tables based on interest rates ranging from 2.2 to 22.2 percent. Find the age of the life estate holder or duration of the term in the first column of the table. Next to it, under the column for remainder interests, is a decimal representation of the fractional interest represented by the remainder. Multiply this decimal by the basis of the property and you have the basis of the remainder interest.

Examples: Bob's grandfather died in March of 2009 and left a house valued at $100,000 to his mother for life, with the remainder interest to Bob. Bob's mother is 65 years old. The Sec. 7520 rate for that month is 2.4 percent, and the fractional value of the remainder is .67881. The value of Bob's interest in the house is $67,881.

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This is a simple question, but the question does not have a simple answer. Generally speaking the answer is no, closing costs are not deductible when refinancing. However, the answer depends on what you mean by "closing costs" and what is done with the money obtained in the refinancing.

Costs added to basis. Certain expenses paid in connection with the purchase or refinancing of a home, regardless of when paid, are capital expenses that must be added to the basis of the residence. These include attorney's fees, abstract fees, surveys, title insurance and recording or mortgage fees. Adding these costs to basis will lower any capital gain tax that you pay when you eventually sell your home. If your gain is sheltered anyway by the home sale exclusion of $250,000 ($500,000 for couples filing jointly) on the eventual sale of a principal residence, any previous addition to basis, while doing no harm, will also do no good.

Costs neither deductible nor added to basis. Other costs are neither deductible nor added to basis. These costs include fire insurance premiums, FHA mortgage insurance premiums and VA funding fees, settlement fees and closing costs.

Interest expense. Taxpayers may deduct qualified residence interest, however. "Qualified residence interest" is interest that is paid or accrued during the tax year on acquisition or home equity indebtedness with respect to a qualifying residence.

Points. Points are charges paid by a borrower to obtain a home mortgage. Other names used for deductible points are loan origination fees, loan discounts, discount points and maximum loan charges. While a fairly broad rule permits the deduction of home mortgage interest, the rule governing the deduction of points is narrower and has a number of restrictions. Points paid to refinance a mortgage on a principal residence, like other pre-paid interest that represents a charge for the use of money, are generally not deductible in the year paid and must be amortized over the life of the mortgage. However, if the borrower uses part of the refinanced mortgage proceeds to improve his or her principal residence, the points attributable to the improvement are deductible in the year paid.

Prepayment penalties. In cases where a creditor accepts prepayment of a secured debt, such as a mortgage debt on a home, but imposes a prepayment penalty, the prepayment penalty is deductible as interest.

Applicable forms. To deduct home mortgage interest and points, you must file Form 1040 and itemize deductions on Schedule A; the deduction is not permitted on Form 1040EZ.

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