Making the dream of owning a home a reality is a big step for many people. Whether a fixer-upper or dream home, homeownership is a milestone that can come with a learning curve. First-time homeowners should make themselves familiar with authorized deductions, programs that can assist with home ownership and the use of housing allowances that can be beneficial.

When it comes to home ownership, the IRS considers a home to be a house, condominium, cooperative apartment, mobile home, houseboat or house trailer that contains a sleeping space, toilet and cooking facilities.

Most home buyers take out a mortgage loan to buy their home and then make monthly payments to the mortgage holder. This payment may include several costs of owning a home. The only costs the homeowner can deduct are:

• state and local real estate taxes, subject to the $10,000 limit
• home mortgage interest, within the allowed limits
• mortgage insurance premiums

Taxpayers must file Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Income Tax Return for Seniors, and itemize their deductions to deduct home ownership expenses. However, taxpayers can’t take the standard deduction if they itemize.

Non-deductible payments and expenses
Homeowners can’t deduct any of the following items.

• Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
• The amount applied to reduce the principal of the mortgage
• Wages you pay for domestic help
• Depreciation
• The cost of utilities, such as gas, electricity, or water
• Most settlement or closing costs
• Forfeited deposits, down payments, or earnest money
• Internet or Wi-Fi system or service
• Homeowners’ association fees, condominium association fees, or common charges
• Home repairs

Mortgage interest credit
The mortgage interest credit is meant to help individuals with lower income afford home ownership. Those who qualify can claim the credit each year for part of the home mortgage interest paid.

A homeowner may be eligible for the credit if they were issued a qualified Mortgage Credit Certificate from their state or local government. An MCC is issued only for a new mortgage for the purchase of a main home. The MCC will show the certificate credit rate the homeowner will use to figure their credit. It will also show the certified indebtedness amount and only the interest on that amount qualifies for the credit.

Homeowners Assistance Fund
The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying certain expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and also displacements of homeowners experiencing financial hardship after January 21, 2020.

Minister’s or military housing allowance
Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don’t have to reduce their deductions based on the allowance.

More information:
Publication 530, Tax Information for Homeowners
Publication 936, Home Mortgage Interest Deduction

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People can get the latest IRS news through the agency’s verified social media accounts and by subscribing to e-news services. These communication channels keep taxpayers “in the know” about important tax matters all year, not just during filing season.

IRS social media platforms

• Twitter: Taxpayers, businesses and tax professionals can follow the IRS handles for announcements, tips and tax security alerts.
  • IRS Twitter Moments highlight key messages, in Spanish, Vietnamese, Russian, Korean, Haitian Creole and Simplified Chinese.
    People can also follow @RecruitmentIRS to learn about job opportunities at the agency.
• Facebook: News and information for everybody. There’s also a page in Spanish.
• Instagram: The IRS Instagram account shares taxpayer-friendly information.
• YouTube: The IRS offers three video channels − English, American Sign Languageand Multilingual. This channel features videos in Spanish, Chinese and Vietnamese. It also features playlists on specific tax topics, for tax professionalsand small businesses.
• LinkedIn: The IRS shares key agency communications and job opportunities.

The agency also has a free mobile app, IRS2Go, where taxpayers can check their refund status, find free tax help, watch IRS YouTube videos, and get daily tax tips. The IRS2Go app is available from the Google Play Store for Android devices, or from the Apple App Store for Apple devices. It is available in both English and Spanish.

The IRS does not send direct messages to taxpayers on social media asking for personal or financial information. Scammers make fake accounts impersonating the IRS. These are common scams that try to lure taxpayers on social media platforms or with unsolicited emails, texts, or calls.

Anyone can sign up for automatic email updates
The IRS e-News subscription service issues tax information by email for many different audiences. It provides tips, tools, and helpful materials of interest to taxpayers and organizations. The IRS offers subscription services tailored to tax exempt and government entities, small and large businesses as well as individuals. The service is easy to use. Anyone can sign up by visiting IRS e-News Subscriptions.

IRS e-News options include:

• IRS Outreach Connection − This subscription offering delivers up-to-date materials for tax professionals and partner groups inside and outside the tax community. The material for Outreach Connection is specifically designed so subscribers can share the material with their clients or members through email, social media, internal newsletters, e-mails or external websites.
• IRS Tax Tips – These brief, concise tips in plain language cover a wide-range of topics of general interest to taxpayers. They include the latest on tax scams, tax reform, tax deductions, filing extensions and amending returns. IRS Tax Tipsgenerally come out each weekday.
• IRS Newswire − Subscribers to IRS Newswire receive news releases the day they are issued. These cover a wide range of tax administration issues ranging from breaking news to details related to legal guidance.
• IRS News in Spanish – Noticias del IRS en Español − Readers get IRS news releases, tax tips and updates in Spanish. Subscribe at e-News Subscriptions.
• e-News for Tax Professionals − Includes a weekly roundup of news releases and legal guidance specifically designed for tax professionals. Subscribing to e-News for Tax Professionals gets tax pros a weekly summary, typically delivered on Friday afternoons.
• e-News for Small Businesses – Taxpayers can subscribe to e-News for Small Businesses to receive tax information for small business owners and self-employed individuals.

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Parents who are divorced, separated, never married or live apart and who share custody of a child with an ex-spouse or ex-partner need to understand the specific rules about who may be eligible to claim the child for tax purposes. This can make filing taxes easier for both parents and avoid errors that may lead to processing delays or costly tax mistakes.

Only one person may be eligible to claim the qualifying child as a dependent.

Only one person can claim the tax benefits related to a dependent child who meets the qualifying child rules. Parents can’t share or split up the tax benefits for their child on their respective tax returns.

It’s important that each parent understands who will claim their child on their tax return. If two people claim the same child on different tax returns, it will slow down processing time while the IRS determines which parent’s claim takes priority.

Custodial parents generally claim the qualifying child as a dependent on their return.

• The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent.
• In most cases, because of the residency test, the custodial parent claims the child on their tax return.
• If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income.

Tie-breaker rules may apply if the child is a qualifying child of more than one person.

• Although the child may meet the conditions to be a qualifying child of either parent, only one person can actually claim the child as a qualifying child, provided the taxpayer is eligible.
• People should carefully read Publication 504, Divorced or Separated Individuals to understand who is eligible to claim a qualifying child.

Noncustodial parents may be eligible to claim a qualifying child.
Special rules apply for a child to be treated as a qualifying child of the noncustodial parent.

• The custodial parent can release the dependency exemption and sign a written declaration or Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent for the noncustodial parent to submit with their tax return.
• This also applies to some tax benefits, including the child tax credit, additional child tax credit, and credit for other dependents. It doesn’t apply to other tax benefits, such as the earned income credit, dependent care credit or head of household filing status.

More information:
Publication 501, Dependents, Standard Deduction, and Filing Information
Whom May I Claim as a Dependent?

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The IRS encourages businesses to begin planning now to take advantage of tax benefits available to them when they file their 2022 federal income tax return. This includes the enhanced business meal deduction.

For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.

To qualify for the enhanced deduction:

• The business owner or an employee of the business must be present when food or beverages are provided.
• Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
• Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023.
• The expense cannot be lavish or extravagant.

Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants. ¬

Employers may not treat certain employer-operated eating facilities as restaurants, even if they operate under contract by a third party.

Here’s what business owners need to know about certain costs:

• The cost of the meal can include taxes and tips.
• The cost of transportation to and from the meal isn’t part of the cost of a business meal.

Entertainment events
Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event if either of these apply:

• the purchase of the food and beverages occurs separately from the entertainment
• the cost of the food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts.

Businesses should review the special recordkeeping rules that apply to business meals.

More information:
Publication 463, Travel, Gift, and Car Expenses

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The EITC is one of the federal government’s largest refundable tax credits for low-to moderate-income families. The recent expansion of this credit means that more people may qualify to have some much-needed money put back in their pocket.

The IRS urges people to check to see if they qualify for this important credit. While people with income under a certain amount aren’t required to file a tax return because they won’t owe any tax, those who qualify for EITC may get a refund if they file a 2021 tax return.

Here’s an overview of the recent notable changes to the EITC for tax year 2021 only:

Expanded EITC for people who do not have qualifying children
More workers without qualifying children can qualify for the EITC, and the maximum credit amount is nearly tripled for these taxpayers this year. For the first time, the credit is now available to both younger workers and senior citizens. There is no upper age limit for claiming the credit if taxpayers have earned income.

The EITC is generally available to workers without qualifying children who are at least 19 years old with earned income below $21,430 for those filing single and $27,380 for spouses filing a joint return. The maximum credit for taxpayers with no qualifying children is $1,502. There are also special exceptions for people who are 18 years old and were formerly in foster care or are experiencing homelessness. Full-time students under age 24 don’t qualify.

Some taxpayers can use 2019 earned income to figure their EITC
Taxpayers can elect to use their 2019 earned income to figure their 2021 earned income credit if their 2019 earned income is more than their 2021 earned income. This option may help workers get a larger credit if they earned less in 2021 from employment. Taxpayers can review line 27c of the instructions for Form 1040 for more information.

Phaseouts and credit limits
For 2021, the amount of the credit has been increased and the phaseout income limits have been expanded.

Any third-round Economic Impact Payments or child tax credit payments received are not taxable or counted as income for purposes of claiming the EITC. People who are missing a stimulus payment or got less than the full amount may be eligible to claim the recovery rebate credit on their 2021 tax return.

New law changes expand the EITC for 2021 and future years. These changes include:

• More workers and working families who also have investment income can get the credit. Starting in tax year 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000. After 2021, the $10,000 limit is indexed for inflation.
• Married but separated spouses can choose to be treated as not married for the purposes claiming EITC. To qualify, the spouse claiming the credit cannot file jointly with the other spouse. They must have a qualifying child living with them for more than half the year and either:
  • Do not have the same principal residence as the other spouse for at least the last six months out of the year.
  • Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed. Taxpayers should file Schedule EIC – Form 1040 and check the box showing them as married filing separately with a qualifying child.
• Single people and couples with children who have Social Security numbers can claim the credit, even if their children do not have SSNs. In this instance, they will get the smaller credit available to workers who do not have qualifying children. Taxpayers should complete Schedule EIC and attach it to Form 1040 or 1040-SR if they have at least one qualifying child, even if the child doesn’t have a valid SSN. For more information, taxpayers should review the instructions for Form 1040, line 27a, and Schedule EIC.

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WASHINGTON – As part of ongoing efforts to provide additional help for people during this period, the IRS announced today the suspension of more than a dozen additional letters, including the mailing of automated collection notices normally issued when a taxpayer owes additional tax, and the IRS has no record of a taxpayer filing a tax return.

These mailings include balance due notices and unfiled tax return notices. The IRS entered this filing season with several million original and amended returns filed by individuals and businesses that have not been processed due to challenges of the historic pandemic and is taking this step to help avoid confusion for taxpayers and tax professionals.

“IRS employees are committed to doing everything possible with our limited resources to help people during this period,” said IRS Commissioner Chuck Rettig. “We are working hard, long hours pushing creative paths forward in an effort to be part of the solution, rather than the problem. Our employees continue to expend every effort to balance a confluence of multiple, unprecedented demands − including successfully starting the filing season, working our inventory of unprocessed tax returns as well as looking for additional ways to minimize burden for taxpayers, tax professionals and businesses.

“Our efforts are not limited to suspension of these additional letters and the possibility of similar actions going forward. We have redeployed and reallocated resources throughout the IRS and have implemented innovative strategies in an ongoing effort to provide a meaningful reduction in our inventories,” Rettig said.

These automatic notices have been temporarily stopped until the backlog is worked through. The IRS will continue to assess the inventory of prior year returns to determine the appropriate time to resume the notices.

Some taxpayers and tax professionals may still receive these notices during the next few weeks. Generally, there is no need to call or respond to the notice as the IRS continues to process prior year tax returns as quickly as possible.

However, if a taxpayer or tax professional believes a notice is accurate, they should act to rectify the situation for the well-being of the taxpayer. For example, the IRS cautions people with a balance due that interest and penalties can continue to accrue. In addition, IRS employees may in select circumstances issue notices to particular taxpayers to resolve specific compliance issues.

The IRS does not have the authority to stop all notices as many are legally required to be issued within a certain timeframe. The IRS will continue to assess other changes and system modifications that the IRS may be able to implement to assist taxpayers on an array of issues. The IRS will continue to make information available to taxpayers throughout the filing season.

The IRS encourages those who have a filing requirement and have yet to file a prior year tax return or to pay any tax due to promptly do so as interest and penalties will continue to accrue. Visit IRS.gov for payment options.

The suspended notices include:

WASHINGTON — The Internal Revenue Service today updated its frequently asked questions (FAQs) for the 2021 Child Tax Credit and Advance Child Tax Credit Payments.

This updated FAQ modifies a question and adds a new question (FS-2022-07) PDF:

• Question 4, Topic H: Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return
• Question 10, Topic H: Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible.

More information about reliance is available.

With the tax filing season almost here, taxpayers should check out two IRS publications available on IRS.gov. These publications can help people get prepared and stay organized with tips for year-round tax planning.

Publication 5348, Get ready to file
Tax planning is for everyone. Taxpayers can use this publication to help them get ready to file their 2021 federal income tax return next year. Planning helps individuals file an accurate return and avoid processing delays that can slow their tax refund.

Publication 5349, Year-round tax planning is for everyone
Life changes can affect taxpayers’ expected refunds or the amount of tax they owe. These changes include things such as employment status, marital status and financial gains or losses. Publication 5349 provides tips on developing habits throughout the year that will help make tax preparation easier. This resource also includes a checklist of items taxpayers should have on hand when filing their tax return.

More information:
Steps to Take Now to Get a Jump on Next Year’s Taxes

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Businesses that make structural adaptations or other accommodations for employees or customers with disabilities may be eligible for tax credits and deductions.

Here’s an overview of the tax incentives designed to encourage employers to hire qualified people with disabilities and to off-set some of the costs of providing accommodations.

Disabled access credit 
The disabled access credit is a non-refundable credit for small businesses that have expenses for providing access to persons with disabilities. An eligible small business is one that earned $1 million or less or had no more than 30 full-time employees in the previous year. The business can claim the credit each year they incur access expenditures.

Barrier removal tax deduction 
The architectural barrier removal tax deduction encourages businesses of any size to remove architectural and transportation barriers to the mobility of people with disabilities and the elderly. Businesses may claim a deduction of up to $15,000 a year for qualified expenses on items that normally must be capitalized.

Businesses claim this deduction by listing it as a separate expense on their income tax return. Also, businesses may use the disabled tax credit and the architectural/transportation tax deduction together in the same tax year if the expenses meet the requirements of both sections. To use both, the deduction is equal to the difference between the total expenses and the amount of the credit claimed.

Work opportunity tax credit
The work opportunity tax credit is available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. This includes people with disabilities and veterans.  The maximum amount of  tax credit for employees who worked 400 or more hours of service is:

• $2,400 or 40% of up to $6,000 of first year wages, for qualifying individuals.
• $9,600 or 40% of up to $24,000 of first year wages for certain qualified veterans.

A 25% rate applies to wages for individuals who work at least 120 hours but less than 400 hours for the employer.

IR-2021-242, Dec. 6, 2021

WASHINGTON – The Internal Revenue Service today issued guidance for employers regarding the retroactive termination of the Employee Retention Credit. The Infrastructure Investment and Jobs Act, which was enacted on Nov. 15, 2021, amended the law so that the Employee Retention Credit applies only to wages paid before October 1, 2021, unless the employer is a recovery startup business.

Notice 2021-65 applies to employers that paid wages after September 30, 2021, and received an advance payment of the Employee Retention Credit for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of 2021, but are now ineligible for the credit due to the change in the law. The notice also provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021.

Employers who Received Advance Payments

Generally, employers that are not recovery startup businesses and received advance payments for fourth quarter wages of 2021 will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns. 

Employers who Reduced Employment Tax Deposits

Employers that reduced deposits on or before Dec. 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit and that are not recovery startup businesses will not be subject to a failure to deposit penalty with respect to the retained deposits if—

1. The employer reduced deposits in anticipation of the Employee Retention Credit, consistent with the rules in Notice 2021-24,
2. The employer deposits the amounts initially retained in anticipation of the Employee Retention Credit on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer, and
3. The employer reports the tax liability resulting from the termination of the employer’s Employee Retention Credit on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.

Due to the termination of the Employee Retention Credit for wages paid in the fourth quarter of 2021 for employers that are not recovery startup businesses, failure to deposit penalties are not waived for these employers if they reduce deposits after Dec. 20, 2021.

If an employer does not qualify for relief under this Notice, it may reply to a notice about a penalty with an explanation and the IRS will consider reasonable cause relief.

More information for businesses seeking coronavirus- related tax relief can be found at IRS.gov.