Roth affect on 2010 AGI
I don’t know how this Roth(100K) will affect my Adjusted Gross Income in 2010. Will the total 100K be added into my AGI in 2010 or equally split to the AGI in 2011 and 2012. This will affect when I take my real estate taxes and charity donations depending on your answer.
Permalink Submitted by Alan Spross on Mon, 2010-12-27 23:59
You have an option on 2010 conversions whether to defer the income 50% each to 2011 and 2012 or to opt out and report it all in 2010. The option you choose will determine the year that your AGI increases due to the conversion.
If you go with the two year deferral, you still report the conversion on a 2010 8606 form, but that form also has a section where you elect to defer the income. If you defer the income to 2011 and 2012 then no part of the conversion will affect your 2010 AGI. You would probably also tend to make your donations or pay your property taxes in the year your conversion income would be reported.
While you can recharacterize your conversions or change the year you elect to report them as late as 10/17/2011, you will not be able to change the year you made your deductible payments, so from that standpoint you may be committing yourself on your conversion by whether you are making these payments this week or not.
Remember that the added standard deduction for real estate taxes is no longer in effect for 2010.
Permalink Submitted by Bunny Keller on Wed, 2010-12-29 04:03
Alan, thank you for your most recent explanation. Just the information I needed. However, I am left confused by your final sentence, “Remember that the added standard deduction for real estate taxes is no longer in effect for 2010.” Try as I might, I don’t understand what that means. I have completed my Roth and will opt to report it over two years (2011, 2012). I was (until I read your last sentence) considering taking the standard deduction this year and itemizing the 2010 R.E. taxes and charity deductions into 2011, and the 2011 R.E. taxes and charity deductions into 2012 forms. Can I or can I not do this? Helen
Permalink Submitted by Alan Spross on Wed, 2010-12-29 04:15
For the prior two years, you could take the standard deduction and still add up to 1,000 to that deduction for a joint return if you paid that much in real estate taxes. But this was not extended for 2010.
If you are itemizing your deductions anyway, the loss of the above option will not affect you. But wanted to be sure that you knew that you can only itemize in 2011 or 2012 the allowed deductions that you actually pay in those years, not those you pay in 2010.
In other words, you can defer reporting the Roth conversion into 2011 and 2012, but the itemized deductions do not follow that deferral unless you actually delay paying for those expenses in those years. For charitable deductions this is easy, you just delay the contributions until the year you need to itemize them. But if you already made these contributions or tax payments in 2010, the only year you can itemize them is 2010.
Not sure if this answered your question……….
Permalink Submitted by Bunny Keller on Wed, 2010-12-29 16:22
Thank you Alan. Your explanation was very clear. I never did know about “adding $1000 (R.E. taxes) to a standard deduction in the previous two years” anyway so it has not affected me then and will not affect me this year. I may itemize only a third of them (on installment) this year or none at all depending how it will play out on the bottom line. Thank you again.
Permalink Submitted by Bunny Keller on Thu, 2010-12-30 06:54
Alan, I just found a contradiction to your statement that R.E. taxes cannot be added to the standard deduction in 2010. You said it was not extended for 2010. First, my TurboTax program confused me by allowing it. I then did a search and find IRS Tax Tip 2010-47 on the IRS.ustreas.gov site last reviewed or Updated: March 18, 2010 that states, “This is the last year that the higher standard deduction for real estate taxes is available.” Is your information more current and perhaps related to the recent tax bills that were passed by Congress?
Permalink Submitted by Alan Spross on Thu, 2010-12-30 17:09
The IRS should clarify which year they are referring to in every release. For the tax tip you referenced, it must have been 2009, and published during the 2010 filing season FOR 2009.
Here is a current Release with respect to 2010:
http://www.irs.gov/formspubs/article/0,,id=208097,00.html
Note that the increased std deduction was not part of the 2001 or 2003 tax cuts that were extended. It was passed in 2008 due to the real estate collapse, but was only good for 2008 and 2009.
Permalink Submitted by Bunny Keller on Fri, 2010-12-31 03:30
Alan, thank you for the government site that clearly shows that the $1000 additional deduction of R.E. taxes to the standard deduction is no longer valid. I have found out that TurboTax is adding an update on Jan 6 that will correct that entry. You have been a tremendous help to me (and others). I don’t think you ever sleep! Happy New Year! Helen