Farm Losses

[Christian]

A farm client has posted losses for quite a few years and as a result has an accumulated NOL. This year another loss except instead of the loss showing on line on line 34 as expected a notation to the left of line 34 shows PAL. I've not seen this before but suspect it means he no longer can deduct these losses. If someone can enlighten me I will appreciate it. Normally most of my farm clients post a profit at some point but not this one.

[Christian]

I caught it. I checked the wrong box in the info section. It's been a long and frustrating season. I thought all unemployment insurance was subject to the $10,200 exclusion only to learn today that couples with income above $150,000 pay on any unemployment benefits. The couples' income normally runs $80,00 a year but thanks to an unexpected capital gain shot over the limit making me with mud on my face. OF COURSE, this is the ONLY time in almost 40 years this has occurred. 

[Lion EA]

Did you compare MFS with MFJ?

[Christian]

Idea never occurred to me. Out of curiosity I'll check it but doubt there would be a saving as the capital gain would be assignable to one and the unemployment to the other.

[Lion EA]

But does that get one under the $150,000 cliff so the unemployment is not taxable? And, get one RRC1 and RRC2 and put them in line to get EIP3?

[Christian]

It does reduce the federal tax. The unemployment is his and leaves his income over $75,000. So is he required to include the unemployment since his income exceeds that amount ? I have no clue about the remaining $1400 rebate. A number of unanswered questions and this ole bird is plum worn out today.

[Lion EA]

The unemployment cliff is $150,000.

If he can't get RRC1 and RRC2 and EIP3 because his income is over $75,000, does his spouse qualify for those?

Run the numbers. Let your software do the math.

[Christian]

Let's see their first two rebates had been received. Both exceed $75,000 using the mfs filing status. As the Service has advised to simply disregard amounts sent in error  I see no problem. However, since his income will exceed $75,000 even excluding the unemployment insurance benefit my question is will it be included in his income and I think it would be. Their combined income remains in excess of the $150,000 cliff. 

[Christian]

I am assuming the IRS would have used their 2019 filing to determine their EIP payments.

[Lion EA]

If the IRS used their 2019 filing and it qualifies them for EIP1-2-3, then what more do you want? Did they receive EIP3 yet? If not, you might want to wait to file 2020 if 2020 income will disqualify them from EIP3.

What are you saying will "be included in his income"? Not EIP1 or EIP2, no claw back. Don't think we have all the details yet of EIP3 being reconciled next year. Not unemployment benefits, if they qualify for the exclusion.

[Christian]

It's been a long season. The question of the EIP and rebate payments are resolved. My question is this. Their combined agi for 2020 is in excess of $150,000 which means on their mfj return his benefits of $5440 must be included. On using the mfs filing status both partners' income exceeds $75,00 excluding the unemployment benefit. One would think he would need to include the unemployment benefit in his income but I have gotten other info each marital partner may EXCLUDE the unemployment benefit as each one is afforded the $150,00 cliff. I find this surprising and am unable for now to find a confirmation of this myself.

[Christian]

Well lucky them they get to exclude the $5440 !

[Lion EA]

Yep, $150,000 cliff for every return. So, if one or both spouses can get below $150,000 by filing MFS, then one or both spouses can exclude up to $10,200. Of course, then they pay you for two sets of returns and pay the higher MFS tax rates and could lose a tax credit or two, so you have to run the numbers (and charge them for your research!) to see what gives them the best overall family outcome. This is one of the many reasons that it's taking me more time to prepare EVERY return this year!