A 1031 exchange allows you to sell an investment property and defer all capital gains taxes by reinvesting the proceeds into a like-kind replacement property. You must identify the replacement property within 45 days and close within 180 days, using a qualified intermediary to hold the funds.

Yes. Residential rental properties, commercial buildings, raw land, and even some types of personal property qualify. The property must be held for investment or business use — your primary residence does not qualify.

The deferred gain carries forward into the replacement property's adjusted basis. You can continue deferring it through a chain of 1031 exchanges. If you hold the property until death, heirs receive a step-up in basis and the deferred gain is eliminated entirely.

After selling your relinquished property, you have exactly 45 calendar days to identify up to three potential replacement properties in writing. Missing this deadline disqualifies the entire exchange and makes the full gain taxable immediately.

Yes — "like-kind" is broadly defined for real estate. You can exchange a single-family rental for a commercial building, raw land, or a multi-family property. The key is that both properties must be held for investment or business use.

A Cost Segregation Study is most beneficial for newly constructed or recently acquired commercial properties, as well as properties that have undergone significant renovations. While residential rental properties can also benefit, the accelerated depreciation from a Cost Segregation Study is generally more impactful for commercial assets due to the higher basis in depreciable property. The IRS provides guidance on suitable property types in its Cost Segregation Audit Techniques Guide, emphasizing properties with a substantial amount of personal property and land improvements that can be reclassified from 39-year or 27.5-year depreciation to 5, 7, or 15-year property. This reclassification allows for faster depreciation deductions under IRC Section 167.

Yes, certain types of property are excluded from installment sale treatment. For instance, sales of inventory and dealer property generally do not qualify, as outlined in IRC Section 453(b)(2)(B). Additionally, sales of depreciable property to a related person (as defined in IRC Section 1239(b)) are typically not eligible for installment sale reporting, with all payments being deemed received in the year of sale. This is to prevent tax avoidance schemes where depreciation recapture could be deferred. However, there are exceptions, such as if the related person can demonstrate that the avoidance of federal income tax was not one of the principal purposes of the disposition.

The 'step-up in basis' generally does not apply to inherited IRAs or other tax-deferred retirement accounts. These accounts are already subject to income tax upon distribution, and their basis is typically zero for income tax purposes. Instead, beneficiaries of inherited IRAs are subject to specific distribution rules under IRC Section 401(a)(9), which includes the 10-year rule for most non-spouse beneficiaries. There is no reset of the cost basis for the underlying assets within these accounts upon the original owner's death, as they are taxed on the withdrawals themselves, not on capital gains from asset appreciation.

Yes, assets held in a revocable living trust generally receive a 'step-up in basis' upon the death of the grantor, provided the trust is includible in the grantor's gross estate for federal estate tax purposes under IRC Section 2038 or 2039. During the grantor's lifetime, a revocable trust is typically considered a 'grantor trust' under IRC Sections 671-679, meaning the grantor is treated as the owner of the assets for income tax purposes. Upon death, the trust becomes irrevocable, and the assets receive a new basis equal to their fair market value on the date of death, or the alternate valuation date if elected under IRC Section 2032.

If an asset that received a 'step-up in basis' is sold shortly after inheritance, the capital gain or loss will be calculated using the new, stepped-up basis. This often results in little to no capital gain if the sale occurs soon after death, as the fair market value at the time of sale is likely close to the stepped-up basis. For example, if an asset valued at $500,000 at death is sold for $505,000 a month later, the taxable gain would only be $5,000. This effectively eliminates the capital gains that accrued during the decedent's lifetime, as per the intent of IRC Section 1014.

Yes, there are a few limitations and exceptions to the 'step-up in basis' rule. One notable exception is for 'income in respect of a decedent' (IRD) under IRC Section 691, which includes items like unpaid salary, retirement account distributions, and certain installment sale proceeds; these do not receive a step-up. Additionally, if an asset was gifted back to the decedent within one year of their death and then inherited by the original donor, it does not receive a step-up in basis, as per IRC Section 1014(e). This prevents individuals from gifting appreciated assets to a terminally ill person solely to receive a step-up upon re-inheritance.

The application of the 'step-up in basis' to jointly owned property depends on the form of ownership and whether the owners are spouses. For property held as joint tenants with right of survivorship between spouses, one-half of the property's value is generally included in the deceased spouse's estate, and that half receives a step-up in basis under IRC Section 2040(b). For non-spousal joint ownership, the amount included in the decedent's estate, and thus eligible for a step-up, is based on the decedent's contribution to the purchase price, as per IRC Section 2040(a). The surviving owner's original basis for their share remains unchanged.

The IRS allows you to deduct the cost of a residential rental building (excluding land) over 27.5 years. This creates a non-cash deduction each year — meaning you get a tax write-off without spending any money. A $300,000 building generates $10,909/year in depreciation deductions automatically.

Yes. Depreciation is based on the property's cost basis, not your equity. You can deduct the full depreciation amount regardless of how much you owe on the mortgage.

Depreciation taken during ownership is subject to recapture at a 25% rate when you sell. However, this can be deferred indefinitely using a 1031 exchange, or eliminated entirely if you hold the property until death and your heirs receive a step-up in basis.

You can catch up on all missed depreciation in a single year by filing IRS Form 3115 (Change in Accounting Method). This is a powerful strategy for landlords who have owned property for years without properly tracking depreciation.

No. Land does not wear out and cannot be depreciated. Only the building and improvements are depreciable. Properly allocating the land value (typically using the assessed value ratio from property tax records) is essential to maximizing your depreciation deduction.

Yes, if you itemize deductions. You can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately) on your primary residence and one second home. The deduction only makes sense if your total itemized deductions exceed the standard deduction ($30,000 for married filers in 2026).

Yes. Mortgage interest on a second home (vacation home or investment property used personally) is deductible on the same $750,000 combined limit. If the property is rented out, different rules apply and the deduction is taken on Schedule E.

Add up your mortgage interest, state and local taxes (up to $10,000), charitable contributions, and other itemizable expenses. If the total exceeds $15,750 (single) or $30,000 (married filing jointly) in 2026, itemizing saves you more money.

Only if the loan proceeds were used to buy, build, or substantially improve the home securing the loan. Home equity loans used for other purposes (paying off credit cards, vacations) are not deductible under current law.

Yes. Points paid on a mortgage to purchase your primary residence are generally deductible in the year paid. Points paid on a refinance must be deducted over the life of the loan.

The federal solar energy tax credit (under 26 U.S. Code § 25D) allows you to claim expenses for new, qualified solar electric property. This includes the cost of solar panels or photovoltaic cells, mounting equipment, inverters, wiring, and labor costs for onsite preparation, assembly, or installation. It also covers the cost of sales tax on eligible equipment. However, the credit does not extend to expenses for structural components of your home that are not directly related to the solar energy system, such as a new roof installed solely to support the panels.

No, you generally cannot claim the federal solar energy tax credit (26 U.S. Code § 25D) if you lease your solar panels. To be eligible for the credit, you must be the owner of the solar energy system. The credit is intended for taxpayers who purchase and install solar energy property on their primary or secondary residence. If you enter into a lease agreement, the company that owns the panels would be the entity, if any, that could potentially claim certain tax benefits, not the homeowner.

No, for residential solar energy systems placed in service after 2021, there is no maximum dollar limit on the federal solar energy tax credit (26 U.S. Code § 25D). The credit is calculated as a percentage of the eligible expenses. For systems placed in service in 2026, the credit remains at 30% of the cost of new, qualified solar electric property. This means that regardless of the total cost of your system, you can claim 30% of those eligible expenses without an upper cap on the credit amount itself.

To claim the federal solar energy tax credit, you will need to complete IRS Form 5695, Residential Energy Credits, and attach it to your federal income tax return (Form 1040). On Form 5695, you will report the total cost of your eligible solar energy system. The form will guide you through calculating the 30% credit amount, which is then carried over to your Form 1040. It's crucial to keep detailed records of your solar energy system purchase and installation, including invoices and receipts, in case of an IRS inquiry.

To qualify for the Energy Efficient Home Improvement Credit (25C), products must meet specific energy efficiency standards established by the IRS, often referencing ENERGY STAR criteria or other Department of Energy requirements. For example, exterior windows and skylights must meet ENERGY STAR most efficient certification requirements, while exterior doors must meet applicable ENERGY STAR requirements. Insulation materials must meet International Energy Conservation Code (IECC) standards in effect at the beginning of the year that is 2 years prior to the year the property is placed in service. Taxpayers should consult the IRS guidance and manufacturer specifications to ensure their chosen products comply with these standards, as only qualifying products are eligible for the credit.

Yes, for certain improvements, labor costs can be included when calculating the Energy Efficient Home Improvement Credit (25C). Specifically, for qualified energy efficiency improvements like central air conditioners, furnaces, water heaters, and heat pumps, the credit generally applies to both the cost of the property and the labor costs for its installation. However, for building envelope components such as insulation, exterior windows, and doors, only the cost of the materials themselves typically qualifies, not the labor for their installation. It's crucial to differentiate between these categories when calculating your eligible expenses for the credit, which is capped at $1,200 annually for most improvements and $2,000 for heat pumps, biomass furnaces, or boilers.

No, the Energy Efficient Home Improvement Credit (25C) generally applies to improvements made to an existing home that serves as your principal residence. The credit is intended to incentivize upgrades to existing structures, not to subsidize the construction of new homes. Therefore, if you are building a brand new home, the costs associated with energy-efficient components installed during the initial construction phase are typically not eligible for this particular credit. However, other credits, such as the new clean energy home credit (45L), might apply to eligible new homes placed in service after 2022, so it's important to explore all available options.

To support your claim for the Energy Efficient Home Improvement Credit (25C), you should retain detailed records of all qualifying expenditures. This includes invoices and receipts that clearly show the cost of the eligible property, the date of purchase, and the name of the seller or installer. It's also advisable to keep documentation proving the product meets the required energy efficiency standards, such as manufacturer certifications or ENERGY STAR labels. While you don't typically need to submit these documents with your tax return, the IRS may request them if your return is audited. Maintaining thorough records is essential for substantiating your credit claim and demonstrating compliance with IRS requirements.

No, there are no specific income limitations for claiming the Energy Efficient Home Improvement Credit (25C). This credit is available to all eligible taxpayers who make qualifying energy-efficient improvements to their principal residence, regardless of their adjusted gross income. The credit amounts are fixed, with a maximum annual credit of $1,200 for most improvements, and a separate annual credit of up to $2,000 for qualified heat pumps, biomass furnaces, or biomass boilers. This makes the credit accessible to a broad range of homeowners looking to reduce their energy consumption and improve their home's efficiency.

The PTET SALT workaround allows pass-through entities (PTEs) to pay state income tax at the entity level, which is then deductible against federal taxable income. This effectively bypasses the $10,000 limitation on the individual federal deduction for state and local taxes, as outlined in Section 164(b)(6) of the Internal Revenue Code. For tax year 2026, and assuming the current SALT cap remains in effect, this strategy allows partners and S-corporation shareholders to indirectly deduct their full share of state income taxes paid by the entity. This provides a significant tax benefit, particularly for high-income earners in high-tax states.

Yes, when a PTET election is made, the individual owners typically receive a corresponding credit on their state income tax return for their share of the taxes paid by the entity. This prevents double taxation at the state level. Federally, the income passed through to the owners is reduced by the state tax paid at the entity level, effectively lowering their federal adjusted gross income. This mechanism ensures that the benefit of the uncapped state tax deduction flows through to the individual owners, consistent with the intent of IRS Notice 2020-75.

Generally, the PTET SALT workaround is available to partnerships, including multi-member LLCs taxed as partnerships, and S corporations. Sole proprietorships and single-member LLCs taxed as disregarded entities are typically not eligible, as they are not considered pass-through entities for this purpose. The specific eligibility requirements can vary by state, so it's crucial for entities to review their respective state's PTET legislation. For example, some states may require all owners to consent to the election, while others may have specific ownership structure requirements.

Yes, each state that offers a PTET SALT workaround has its own specific election deadlines and procedural requirements, which must be strictly adhered to. For the 2026 tax year, these deadlines typically align with the due date of the entity's state income tax return, including extensions. Entities often need to make an affirmative election on their state tax forms or through a separate filing. Failure to meet these deadlines or follow the correct procedures could result in the loss of the PTET benefit for that tax year, so proactive planning and consultation with a tax professional are essential.

The ability to revoke a PTET SALT workaround election varies by state. Some states allow for revocation, often with specific deadlines and procedures, while others may consider the election irrevocable for a certain period or once made for a given tax year. If an election is revoked, the pass-through entity would no longer be able to deduct state income taxes at the entity level, and individual owners would again be subject to the federal $10,000 SALT deduction limitation under Section 164(b)(6). It's crucial to understand the specific state rules regarding revocation before making the initial election, as it can have significant and lasting tax consequences.

As a sole proprietor, you pay 15.3% self-employment tax on all net profits. As an S-Corp owner, you pay yourself a reasonable salary (subject to payroll taxes) and take the remaining profit as a distribution — which is not subject to self-employment tax. On $150,000 in profit, this can save $10,000–$20,000/year.

The IRS requires S-Corp owner-employees to pay themselves a "reasonable compensation" — roughly what you would pay a third party to do your job. The IRS looks at industry benchmarks, the services you provide, and the profitability of the business. Underpaying yourself is a major audit trigger.

The S-Corp election typically makes financial sense when your net self-employment income exceeds $50,000–$60,000/year. Below that threshold, the administrative costs (payroll processing, additional tax filings) often exceed the SE tax savings.

Yes. An LLC can elect to be taxed as an S-Corp by filing IRS Form 2553. The LLC retains its legal structure while being treated as an S-Corp for tax purposes. This is one of the most common and effective tax elections for small business owners.

S-Corps require running payroll, filing quarterly payroll tax returns, and paying additional accounting fees. They also have restrictions: no more than 100 shareholders, all shareholders must be US citizens or residents, and only one class of stock is allowed. For most small businesses, the tax savings far outweigh these administrative requirements.

Yes, the Augusta Rule (IRC Section 280A(g)) can apply to a vacation home, provided it is also used as a personal residence. For the Augusta Rule to apply, the property must be rented for fewer than 15 days during the tax year. During these rental days, the property is treated as a rental property, but the income is not taxable, and no deductions (like depreciation or utilities) are allowed against it. This strategy is particularly effective for business owners who own vacation properties and need a legitimate, short-term rental space for business meetings, retreats, or events.

Yes, for tax year 2026, the QBI Deduction Section 199A has income limitations that significantly impact its availability, especially for specified service trades or businesses (SSTBs). For married filing jointly, if taxable income exceeds approximately $400,000 (indexed for inflation), the deduction for SSTBs is completely phased out. Below this threshold, but above a lower threshold (around $350,000 for married filing jointly), the deduction for SSTBs is subject to a phase-out, and the W-2 wage and unadjusted basis of qualified property (UBIA) limitations begin to apply. For non-SSTBs, these limitations only begin to apply once taxable income exceeds the upper threshold, providing a full deduction below that amount, subject to the QBI and taxable income limitations. Taxpayers should consult IRS Publication 535 or a tax professional to determine their specific thresholds and deduction eligibility.

With a Solo 401(k), you can make two types of contributions: elective deferrals (as an employee) and profit-sharing contributions (as an employer). For 2026, the elective deferral limit is projected to be $23,000, or $30,500 if you're age 50 or older (IRS Code Section 402(g)). The profit-sharing contribution allows you to contribute up to 25% of your net self-employment earnings, as defined by IRS Code Section 401(a)(3) and 404(a)(8). These two contribution types combined are subject to an overall limit, projected to be $69,000 for 2026, or $76,500 if you're age 50 or older.

No, you generally cannot claim the self-employed health insurance deduction if you are eligible to participate in an employer-sponsored health plan, even if you choose not to. This restriction applies if you, or your spouse, are eligible for a plan that provides coverage on a subsidized basis. The IRS specifically addresses this in Publication 535, Business Expenses. This rule prevents individuals from double-dipping on tax benefits for health insurance. However, if the employer-sponsored plan does not offer coverage to your dependents, you may still be able to deduct premiums paid for their coverage.

The self-employed health insurance deduction is an 'above-the-line' deduction, meaning it reduces your Adjusted Gross Income (AGI). This is a significant benefit because a lower AGI can qualify you for other tax credits and deductions that are AGI-dependent, such as certain education credits or medical expense deductions. It's reported on Schedule 1 (Form 1040), Part II, line 17. Unlike itemized deductions, you don't need to itemize to claim this deduction, making it accessible to a wider range of self-employed individuals.

Most types of health insurance plans qualify for the self-employed health insurance deduction, as long as they cover medical care. This includes traditional health insurance, qualified long-term care insurance (subject to age-based limits under IRC Section 213(d)(10)), and Medicare premiums (Parts A, B, C, and D). However, premiums for disability insurance, life insurance, or health insurance that pays a fixed amount per day (like a hospital indemnity plan) generally do not qualify. The key is that the insurance must be for medical care as defined by the IRS.

Yes, you can include premiums paid for your spouse, dependents, and any child under age 27 at the end of the tax year, even if they are not your dependent, when calculating your self-employed health insurance deduction. This is a broad definition, aligning with the Affordable Care Act's provision for young adults to remain on a parent's plan. The same eligibility rules apply to them as to you; if they are eligible for an employer-sponsored plan, their premiums cannot be included in your deduction. Refer to IRS Publication 535 for detailed guidance on eligible family members.

The Qualified Business Income (QBI) deduction under Section 199A allows owners of pass-through businesses — sole proprietorships, S-Corps, LLCs, and partnerships — to deduct up to 23% of their qualified business income starting in 2026, permanently extended and enhanced under the OBBBA. The full deduction is available if taxable income is below approximately $197,300 (single) or $394,600 (married filing jointly).

Yes. S-Corp owners can claim the QBI deduction on their share of the S-Corp's qualified business income. However, W-2 wages paid to yourself as an S-Corp employee are not included in QBI — only the pass-through profit qualifies.

It depends on income. Consultants are classified as a "specified service trade or business" (SSTB), which means the QBI deduction phases out above approximately $197,300 (single) or $394,600 (married) in 2026. Below those thresholds, consultants get the full 23% deduction.

Yes — the OBBBA permanently extended and enhanced the QBI deduction, increasing it from 20% to 23% starting in 2026. It no longer faces a sunset date. This is one of the most significant permanent tax changes for self-employed individuals and pass-through business owners.

The basic calculation is 23% of your qualified business income, limited to the lesser of 23% of QBI or 50% of W-2 wages paid by the business (or 25% of W-2 wages plus 2.5% of qualified property). For most small business owners below the income thresholds, the calculation is simply 23% of net business income.

When you hire your child who is under the age of 18 in your sole proprietorship or a partnership where both partners are parents of the child, their wages are generally exempt from Social Security and Medicare (FICA) taxes. This significant tax deduction is outlined in IRS Publication 15, Circular E, Employer's Tax Guide. This exemption applies as long as the business is not a corporation or a partnership with non-parent partners. This can lead to substantial FICA tax savings for both the employer and the employee, allowing more of the child's earnings to be retained.

Yes, wages paid to your child for services performed in your trade or business are deductible as a business expense, provided the compensation is reasonable for the services rendered, regardless of their age. For federal unemployment tax (FUTA) purposes, wages paid to a child under the age of 21 by their parent are exempt. This FUTA exemption is detailed in IRS Publication 15, Circular E, Employer's Tax Guide. This means you do not owe FUTA tax on their earnings, further reducing your overall tax burden while still benefiting from the wage deduction.

Yes, if you operate as a sole proprietorship, partnership, or S-corporation and pay health insurance premiums for a family member employee, these premiums can be deductible as a business expense. For a sole proprietorship, if the family member is a bona fide employee and the plan covers them, you may be able to deduct the premiums. Additionally, if the family member is your spouse and you offer a health plan to all employees, the premiums for your spouse can be deducted. This is consistent with IRS guidance on deductible business expenses under IRC Section 162.

The 'kiddie tax' generally applies to unearned income of a child, such as investment income, above a certain threshold (e.g., $2,500 for 2026, adjusted for inflation). However, wages earned by a child from employment in a family business are considered earned income and are not subject to the kiddie tax rules. This is crucial because it means the child's earned income will be taxed at their own, typically lower, individual tax rates, rather than their parents' higher marginal tax rates. This distinction is outlined in IRS Publication 929, Tax Rules for Children and Dependents.

When you hire a family member in an S-corporation or C-corporation, their wages are generally subject to the same federal payroll taxes (Social Security, Medicare, and FUTA) as any other employee. Unlike sole proprietorships or partnerships with only parent partners, the FICA and FUTA exemptions for children under 18 or 21 do not apply in corporate structures. This is because the corporation is considered a separate legal entity from the family. Therefore, you must withhold and pay these taxes according to standard payroll procedures, as detailed in IRS Publication 15, Circular E.

A home office must be used regularly and exclusively for business — a dedicated room or clearly defined space used only for work. A kitchen table where you occasionally work does not qualify. The space must be your principal place of business or where you meet clients.

No. The Tax Cuts and Jobs Act of 2017 eliminated the home office deduction for W-2 employees through 2025. Only self-employed individuals, freelancers, and business owners can currently claim the home office deduction.

You can deduct the business-use percentage of your internet bill. If your home office is 10% of your home's square footage, you can deduct 10% of your internet costs. If you use the internet exclusively for business (a separate business line), you can deduct 100%.

The simplified method allows you to deduct $5 per square foot of your home office, up to 300 square feet ($1,500 maximum). It is easier to calculate but often produces a smaller deduction than the actual expense method for most homeowners.

The home office deduction is not an automatic audit trigger. The IRS does scrutinize it, but a properly documented, legitimate home office is fully defensible. The key is the "exclusive use" requirement — the space must be used only for business, not as a guest room or general living area.

To substantiate your Education Business Expense deductions, you should maintain detailed records including receipts for tuition, fees, books, supplies, and transportation. It's also crucial to keep documentation demonstrating how the education maintains or improves skills required in your current business or job, or meets the express requirements of your employer or the law. This could include course descriptions, employer directives, or professional licensing requirements. These records are essential in case of an IRS audit, as outlined in IRS Publication 529, Miscellaneous Deductions.

Yes, you can deduct travel expenses related to your Education Business Expense if the education qualifies as a deductible business expense. This includes costs for transportation, meals (subject to the 50% limitation), and lodging while away from home primarily to obtain the education. However, if the primary purpose of your travel is personal, you cannot deduct the travel costs, though you may still deduct the education expenses themselves. Refer to IRS Publication 463, Travel, Gift, and Car Expenses, for specific guidance on deductible travel costs.

While there isn't a specific dollar limit on the Education Business Expense itself, the deduction is subject to the general rules for business expenses. For self-employed individuals, these expenses are typically deducted on Schedule C (Form 1040), Profit or Loss From Business, reducing your net earnings. For employees, these expenses are no longer deductible as miscellaneous itemized deductions subject to the 2% AGI limit, as that deduction was suspended from 2018 through 2025 by the Tax Cuts and Jobs Act (TCJA). Therefore, for 2026, employee education expenses are generally not deductible unless reimbursed by your employer under an accountable plan.

An Education Business Expense is deducted on your tax return as a business expense, reducing your taxable income. To qualify, the education must maintain or improve skills needed in your current job or business, or be required by your employer or law. In contrast, qualified education expenses for tax credits (like the American Opportunity Tax Credit or Lifetime Learning Credit) are typically for undergraduate or graduate education at an eligible educational institution, and the credits directly reduce your tax liability. You generally cannot claim both a business deduction and a credit for the same educational expenses, as per IRS Publication 970, Tax Benefits for Education.

No, you generally cannot deduct your Education Business Expense if it qualifies you for a new trade or business. The IRS specifically disallows deductions for education that either meets the minimum educational requirements of your present trade or business or qualifies you for a new trade or business. For example, if you are an accountant and take courses to become a lawyer, those expenses would not be deductible as an Education Business Expense because they qualify you for a new profession. This rule is outlined in Treasury Regulation §1.162-5.