If you're considering gifts to family members in a lower tax bracket, giving long-term appreciated stock rather than cash can offer valuable tax savings. You may be able to eliminate federal income tax on the capital gains if the loved one is in the 0% tax bracket for long-term gains. The recipient can potentially sell the stock tax-free. But the 0% rate applies only until the gains fill up the gap between the recipient's taxable income and the top of the 0% bracket.
Before acting, make sure the recipient won't be subject to the "kiddie tax" and consider gift and generation-skipping transfer tax consequences. Your tax advisor can answer any questions and suggest other ways to reduce taxes on investments.
Year end is an important time to check required minimum distributions (RMDs). If you're age 74 or older in 2026 and already subject to the RMD rules, you generally must take your 2026 RMD from traditional IRAs and applicable employer retirement plans by December 31, 2026.
If you turned — or will turn — 73 this year and 2026 is your first RMD year, you can delay your first RMD until April 1, 2027. But that will mean taking two RMDs in 2027, potentially increasing your taxable income enough to push you into a higher tax bracket and/or negatively affect other tax items. Your tax advisor is available if you have questions or need help evaluating the tax consequences and determining the best timing for your situation.
President Trump has signed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act. Among other things, it expands personal deductions for disaster-related losses. Previously, victims of a federally declared disaster could deduct personal casualty losses only if they itemized, and only to the extent those losses exceeded 10% of their adjusted gross income (AGI).
The new law allows eligible disaster victims (for disasters starting December 28, 2019, through December 31, 2026) to deduct qualified losses above $500 without itemizing and removes the 10% of AGI threshold for those losses. The law also excludes qualified wildfire relief payments from taxable gross income. Consult your tax advisor for details.
If you have significant tax debt, your passport may be at risk. The IRS defines seriously delinquent tax debt (SDTD) as an unpaid, legally enforceable federal tax liability exceeding $66,000 (for 2026) for which a federal tax lien has been filed and administrative remedies have been exhausted or a levy has been issued.
Under a 2015 law, the IRS may notify the U.S. State Dept. and certain contractors involved in passport services when a person owes SDTD. The State Dept. can then deny, revoke or limit your passport. This makes resolving serious tax debt particularly important if you rely on your passport for air travel. Contact your tax advisor for help addressing your tax debt or visit IRS.gov.
If you make a personal loan to a family member or friend, are you out of luck if he or she doesn't pay you back? Actually, you may be able to deduct "bad debt" as a short-term capital loss if you follow the rules: 1) You must have made a bona fide loan, not a gift. Generally, this means you and the borrower signed a promissory note documenting the loan terms and charging interest. 2) You must document your "reasonable" attempts to collect. 3) The debt must be 100% worthless, meaning you have no reasonable expectation of being repaid.
You can deduct the debt the year you discover it's uncollectible. Capital loss limits apply, but unused losses may be carried forward. Your Porte Brown tax advisor is available if you need guidance.
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