• 21 Feb 2012

What's New on Form 1040 for Your 2011 Tax Return?

Thomson Reuters tax analyst explains new situations to consider before filing

"Completing the 2011 Form 1040 should be a little easier than last year for U.S. taxpayers," said Jim Van Grevenhof, senior tax analyst for Thomson Reuters. This is because Congress and the Administration spent late December discussing the payroll tax reduction and had no time for last minute tax law changes. However, Van Grevenhof noted the following eight significant tax law changes from previous legislation that taxpayers should consider before preparing their 2011 Form 1040:

  1. Capital Gains and Losses. Capital gains and losses are two of the more significant changes for 2011. First, the amount of information required for many of these transactions has increased. In addition, many 2011 transactions will be reported on Form 8949 (Sales and Other Dispositions of Capital Assets), which is new this year. For certain 2011 investment transactions, a revamped Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) will now include information on date of acquisition, cost or other basis, disallowed wash sales, and whether the gain or loss is short- or long-term.

    Taxpayers can use one or more Forms 8949 to summarize most of their investment transactions into three categories — transactions with a cost or other basis shown on Form 1099-B, transactions with no cost or other basis shown on Form 1099-B, and other transactions. When completed, the summarized Form 8949 information will be transferred to a reformatted Schedule D (Capital Gains and Losses) for 2011. In certain situations, taxpayers will be required to insert a transaction code and amount to reconcile their gain or loss.

  2. Foreign Assets. Van Grevenhof indicated that the IRS has implemented new regulations designed to uncover information on foreign assets owned by U.S. taxpayers and impacting 2011 individual tax returns. If taxpayers have an interest in one or more specified foreign financial assets (e.g., depository or custodial accounts) with a fair market value (FMV) exceeding certain threshold amounts, additional information must be included with their Form 1040. Specifically, they will be required to complete Form 8938 (Statement of Specified Foreign Financial Assets) and attach it to their Form 1040.

    If the taxpayer lives in the U.S., the reporting threshold limits are specified foreign financial assets that have an aggregate FMV exceeding either $50,000 on the last day of the tax year or $75,000 at any time during the tax year or $100,000 and $150,000, respectively, for married taxpayers filing a joint return. Higher threshold limits apply for U.S. taxpayers living abroad. Van Grevenhof notes the new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file the Report of Foreign Bank and Financial Accounts, also known as the “FBAR.”

  3. Roth Conversions. If taxpayers converted or rolled over an amount to a Roth IRA in 2010 and chose to report the taxable amount on their 2011 and 2012 federal tax returns, they must report the 2011 amount. Additionally, if taxpayers rolled over an amount from a 401(k) or 403(b) plan to a designated Roth account and chose to report the taxable amount on their 2011 and 2012 federal tax returns, they must report the amount that is taxable for 2011.

  4. Mileage Deduction. Driving a personal vehicle for business, a move, or charity can result in a tax deduction. The standard mileage rate for 2011 business miles is 51 cents for miles driven before July 1 and 55.5 cents for miles driven after June 30. For 2011 moving expenses, the standard mileage rate is 19 cents for miles driven before July 1 and 23.5 cents thereafter. The standard mileage rate for charity work is 14 cents per mile for the entire year.

  5. Non-business Energy Property Credit. The non-business energy property credit is still available for energy efficient home improvements (e.g., energy efficient windows), but at a reduced level. For 2011, the credit is limited to $500 (formerly up to $1,500), of which only $200 may be used for windows. However, the maximum credit allowed for 2006 through 2011 cannot exceed the $500 limit. “This may not seem like a lot of money,” said Van Grevenhof; “but keep in mind a tax credit reduces your tax liability on a dollar-for-dollar basis. That’s better than a tax deduction.”

  6. Homebuyer Credit. If taxpayers qualified for the Homebuyer Credit before 2009,  they will likely be required to begin repaying the credit over a 15-year period beginning in 2011, explained Van Grevenhof. The credit is still available for 2011 on a limited basis to certain members (and spouses) of the uniformed services or Foreign Service or an employee of the intelligence community.

  7. Cost Recovery. “There are some extremely advantageous tax breaks available to business owners to write-off qualified equipment for 2011,” said Van Grevenhof. Businesses that acquired and placed qualified property into service during 2011 can claim a depreciation allowance equal to 100 percent of its cost. The equipment must be new to be eligible for this beneficial deduction. In addition, an election to immediately expense up to $500,000 under Section 179 is also available for both new and used equipment purchased and placed in service during the year. The Section 179 deduction phases out on a dollar-for-dollar basis once qualifying new equipment purchased exceeds $2 million. A new provision permits taxpayers to treat up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) as Section 179 property this year, says Van Grevenhof.

  8. Rental Income. For taxpayers with qualified joint ventures reporting rental real estate income not subject to self-employment tax, they must report that income on Form 1040 Schedule E instead of Form 1040 Schedule C, notes Van Grevenhof.

Taxpayers should also be aware that they have until April 17, 2012, to submit their 2011 federal Form 1040s. This year, there are two additional days because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

Taxpayers should consult with a personal tax advisor before applying these or other tax strategies.

Up-to-date analyses of legislation and regulations affecting individual taxpayers are available to tax and accounting professionals on the industry-leading, award-winning Thomson Reuters Checkpoint research platform.

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