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Jennifer Konvalin, Author at Ketel Thorstenson, LLP


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June 1, 20180

On December 22, 2017, the President signed sweeping tax legislation that changed many things.  Over the course of this tax season, some of the most common questions revolved around changes to the mortgage interest deduction rules.

Beginning in 2018 through 2025, the new rules for the mortgage interest deduction are:

1. New mortgage indebtedness is limited to $750,000 for the full interest expense deduction. For any loans originated prior to 2018, we are still allowed to use the old limit of $1.1 million of indebtedness. 

This new $750,000 limit is the total allowed for both your first and second home mortgages combined. As long as the total of your mortgage balances aren’t over this limit, you won’t have to limit the interest deduction. If your total is over this limit, you will have to do a calculation to pro-rate how much of the total interest paid is deductible.

Also, to count as mortgage indebtedness, the loan must have been used to buy, build or improve the home that is the collateral for that loan. Meaning, you can-not get a loan against your primary home and use that money to buy your winter home in Arizona or a new boat, for example, and deduct the interest expense.

Take caution if you decide to refinance a loan that qualified under the “old rules”.  As long as you don’t extend the terms of the loan, or get money back, you can stay grandfathered with the old rules.  If you extend the term of the loan (i.e., your previous mortgage had 23 years left on it, and you now have a new 30 year mortgage), or get any money back, you now are subject to the new rules instead of the old.

2. Home equity lines of credit (HELOC) interest expense is now suspended through 2025.

Under the old law, up to an additional $100,000 of indebtedness interest expense was allowed.

There are two exceptions to this suspension: First, if you borrow on a home equity line of credit and use that money for business, you can still make an election to deduct that interest.

Second if you use a home equity line secured by your primary residence to remodel or improve your primary residence, it is considered mortgage interest and is still deductible under the new rules as long as you don’t go over the new indebtedness limit.

Now for a couple of Q&A items to help clarify some of the most common questions:

Q:  Can I still deduct the mortgage interest I have related to my rental house?

A: Yes, as long as the debt was spent to acquire or improve the rental.

Q:  I borrowed against my primary home to purchase my rental home.  Is that still deductible?

A:  Generally, no, because the collateral was your primary home, not your rental home.  However, there is an election that can be made to ensure deductibility.

Q:  I borrowed against my primary home to purchase a winter home.  Is this still deductible?

A:  No.  Because the winter home is not the collateral for the loan, it is not deductible.

Q:  I have a HELOC that is now not deductible under the new law.  If I refinance my first mortgage on my primary residence and use the extra funds to pay off the HELOC to make the interest now deductible again, is that ok?

A:  No.  If the monies from the HELOC were not used for buying or improving your home originally, rolling them into your first mortgage won’t make them deductible.

Q:  My house is paid off, but I have a HELOC for emergencies and other reasons.  If I borrow on that to remodel my kitchen, does that mean it isn’t deductible since HELOC’s are no longer deductible, generally?

A:  No.  The interest in this case would be deductible because the funds were used to improve your primary residence.

As you can see, this can get very complicated and confusing.  Call your KTLLP tax professional today if you have questions about how this may affect your return in the future.


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June 23, 20140

Jennifer-Konvalin-headshotWe’ve seen this all too often lately: A tax professional e-files a federal income tax return on behalf of a client, but instead of a confirmation, the IRS sends a rejection notice. The reason? That return has already been filed –by an apparent fraudster who is out to receive a false refund.

This type of identity theft is on the rise. The Wall Street Journal reported recently that the IRS found nearly 580,000 returns claiming more than $3.6 billion in fraudulent refunds during the 2013 filing season.

Identity theft is not limited to large cities or other parts of the country. It is happening in places like Rapid City, Spearfish, Custer and Williston. At Ketel Thorstenson, we have seen a recent trend that seems to target medical professionals. It’s especially vexing for victims of identity theft: they have to go through a lengthy process to prove they are who they say they are.

To prevent identity theft, guard your personal information as if your livelihood depended on it, especially your social security number. If you get an email that seems to be from the IRS seeking information, don’t respond. The IRS does not send out emails; the IRS uses the U.S. Mail. What else can you do?

  • Change your passwords and pins regularly.
  • Make your passwords unique, and avoid using kids’ names, pet names or social security numbers. Instead, use a mix of numbers and characters that are at least seven characters long.
  • Avoid using the same password for all of your online activity.
  • Memorize your passwords; don’t write them down.
  • Be aware of “phishing.” This is when legitimate websites are copied and used to create phony sites in order to obtain confidential information.
  • Monitor your bank account and credit cards regularly.
  • Never provide personal information on the phone or over the Internet unless you have initiated the contact.
  • Don’t use a debit or credit card online unless you have initiated the purchase, and be sure it’s a secure, encrypted system. (Look for the “https” in the internet address.)

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June 16, 20140

Jennifer-Konvalin-headshotThis past year, tax professionals nationwide have seen an alarming increase in identity theft happening with their clients.  At this time, there is no better information to determine how or why certain people have been targeted, but we have seen a trend most recently with the medical community.  Please keep in mind, this is happening across the nation, and is certainly not isolated to Rapid City, or even South Dakota.  In fact, in a few states, the FBI, the secret service and the IRS have teamed up to try and find some answers.

Here is how it is uncovered in most cases.  Your tax professional prepared a tax return for you, and tried to e-file the return as required by the IRS.  An e-file rejection notice is received that states a return has already been accepted using the Social Security Number on the return.  This is the first clue that you may have been a victim of identity theft.  This breach may be limited to the IRS and it likely has no correlation (yet) to your bank account or credit cards.

Next, you have to prove to the IRS who you are by completing a simple form to attach to a paper filed tax return. The form includes proof of your identity such as a copy of your driver’s license. This process can be long and cumbersome.

According to an article in the Wall Street Journal, the IRS has found nearly 580,000 returns claiming more than $3.6 billion in fraudulent refunds during the 2013 filing season.  This number has been growing rapidly, and has become a increasing concern in our area of the country.  No longer can this be put off as only happening in urban areas like Florida or California.

Your Social Security number (SSN) is the key to these fraudulent returns.  The thieves have found your number, and are filing an early, fraudulent return, claiming false information to get quick refunds.  As Paul Thorstenson, CEO and Partner of Ketel Thorstenson, LLP, was recently quoted, “My Social Security card, which was issued in 1961, says on it: ‘This shall not be used for identification purposes, now, it’s used for everything.'”  It is key to protect your SSN, yet so many things require it as proof of identification.

In response, the refund process from the IRS is getting slower as well.  The IRS has implemented 14 additional filters in their system attempting to monitor the identity theft issues better.  They are also suspending deceased taxpayers SSN’s quickly, as this has been found to be an easy target area for identity thieves.

The IRS has set up some scam email alert websites at www.usa.gov and www.ftc.gov.  If you receive an email you suspect to be a phishing email or scam, please send to phishing@irs.gov.  I personally received an email just last week which stated my “refund” was increased.  The email looked legitimate.  The only problem is I have not filed a return yet.

So what should you be on the lookout for?  Watch out for things like misspelled words, or if the email wants you to respond with “just a bit more information”.  Do not disclose personal information in responses to emails.  Remember, the IRS does NOT initiate contact with you via email; it will be via the mail.

There are three types of letters or notices the IRS is currently sending out in relation to getting more information before completing the processing of your return.  If you would like assistance, we can help you respond and complete your filing with the IRS.  The IRS is trying to verify that you have actually filed the return they are processing, and that you are not filing a fraudulent return.

If you have been a victim of identity theft, and have proved you are who you say you are to the IRS, they will issue you a six digit PIN number.  Future filings of your return will require this PIN number, and you should protect this information like any other PIN or password.  We can speculate that within a few years, everyone will be filing with assigned PIN numbers.  If you need help, or suspect you have been a victim of identity theft, please contact your tax professional to help you though this process.

What happens now?  Here are steps to help protect yourself:

  • Change your passwords and pins regularly
  • Make your passwords unique.
  • Avoid using birthdays, kids’ names, pet names, social security numbers etc.
  • Make passwords that are a mix of numbers and characters and that are least seven characters long.
  • Avoid using the same password for all of your online activity.
  • Memorize your passwords and do not write them down, or give them to someone.
  • Be aware of “Phishing.”  This is when legitimate websites are copied and used to create phony sites in order to obtain confidential information.
  • Monitor your bank account and credit cards regularly.
  • Never provide personal information on the phone or over the internet unless you have initiated the contact.
  • Do not use your credit card or debit card information to pay for an online purchase unless you have initiated the purchase and it is done through a secure, encrypted system (look for the “https” in the internet address.)

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September 10, 20130

Jennifer-Konvalin-headshotAs a not for profit entity, you may be wondering how the Affordable Care Act (ACA) affects you and what you do. All aspects of the act still apply to you. What are some of the key provisions you need to know and understand?  Following is a summary of items to consider:

  • Are you an Applicable Large Employer (ALE)?
    • Do you know what your full time equivalent (FTE) employee count is? If you have more than 50 FTE’s, then you are an ALE.
    • Do you know how your seasonal or part time workers may affect this?
  • Could you be part of a controlled group?
    • There may be common control issues that you haven’t thought of that will push you into being an ALE when you thought otherwise you weren’t.
  • Are you currently discriminating?
    • If so, you can no longer do this beginning January 1, 2014, regardless of your size.
    • There are penalties for discriminating, but they have been delayed, for how long is unknown. Once in place, they will be $100 per day per employee discriminated against.
    • This also includes having different waiting periods for different employee ‘groups’.
  • Are you subject to the “pay or play” penalties?
    • While this portion of the ACA has been delayed until 2015, now is the time to make sure you are operating in the way you desire to be in compliance once the law comes into effect in 2015.
    • The penalty is either $2,000 or $3,000 depending on if you are offering insurance or not. These beginning penalty amounts are subject to increase with medical inflation after the first year.
    • To avoid the penalty if you are an ALE, you must offer coverage that meets minimum essential benefit and is “affordable” to the employees (they cannot pay more than 9.5% of household income).
  • Have you set your measurement, administrative and stability periods yet?
    • If not, you should now. For a lot of people, their first measurement period may be starting in October or November of 2013. You will want to be prepared for this and be sure you are tracking all of the information you need to be.
  • If you haven’t already done so, every employer should be notifying their employees of the exchange. The deadline for this is October 1, 2013. If you need samples of these forms, they can be found on our website www.ktllp.com.
  • The individual mandate to have health insurance or pay a penalty is still in place for January 1, 2014.

We will continue to monitor this topic and keep you updated with any further changes. The Affordable Care Act niche group at Ketel Thorstenson is here to answer all of your questions as it relates to the ACA and your business.


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