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Deficit Reduction Act

One of the most overwhelming questions that face the United States is the budget deficit. Every election year politicians discuss ways to reduce the budget deficit and try to pass acts to help relieve any burden on the United States. The Deficit Reduction Act of 2005 was one such act that was passed. Below are questions that individuals have asked the Experts in regards to the Deficit Reduction Act.

What is the Deficit Reduction Act of 2005?

The Deficit Reduction Act of 2005 was passed into law in 2006 by the United States Congress. The Deficit Reduction Act was set to save close to over $40 billion in a course of five years from spending programs that are compulsory by measures such as causing the spending of programs such as Medicaid or Medicare. Other programs such as the student loan program made changes in their formulary. TANF or the Temporary Assistance for Needy Families program was reauthorized through the Deficit Reduction Act. Another thing that was touched by the Deficit Reduction Act was the Digital Transition and Public Safety Act of 2005. Read below where Experts have answered many questions about the Deficit Reduction Act.

How does the Deficit Reduction Act affect gifts?

In the United States a gift is not considered to be taxable income, so the individual who receives the gift does not have to pay taxes on it. The individual who gives the gift is able to gift up to a lifetime maximum of one million dollars. When doing this the individual able to gift up to twelve thousand dollars yearly to a person without any gift tax being incurred. The way that the Deficit Reduction Act affects gifts is if the gift is given by individual who is planning on applying for Medicaid to pay for living in a nursing home in a certain number of years. This number of years is known as the look back period, which was 3 years, but after the Deficit Reduction Act was passed the look back period was changed to 5 years.

The Deficit Reduction Act increased the look back period to 5 years, what does this mean?

The increase of the look back period by the Deficit Reduction Act from 3 years to 5 years means that the transferring of assets from an individual going into nursing home care to another individual must meet certain requirements for the individual who assets are being dispersed to be eligible for Medicaid nursing home benefits. If an individual was to sell their assets for less than the fair market value of the assets it is considered to be disposal of resources. The penalty for the disposal of resources is one month of being disqualified from Medicaid medical assist of nursing home care for every $4300 gotten rid of. Due to the Deficit Reduction Act the new look back period will start February 8, 2005, which means that the new look back period will start with transactions made on or after this date.

Are there any individuals who the increase of the look back period, by the Deficit Reduction Act, does not effect?

There are some people that the increase of the look back period by the Deficit Reduction Act, does not affect because the look back period did not have any affect at its original length of 3 years. The following is a list of individuals that a home may be transferred to without incurring any Medicaid penalties: the spouse to the individual going into the nursing home; any certifiable disabled or blind child; a child under the age of twenty-one; a child that has been the caretaker that has also lived in the home for a minimum of 2 years prior to the transferring individual be institutionalized. If the home is transferred to one of these individuals, regardless of the increase by the Deficit Reduction Act, there will be no penalties enforced marking the individual ineligible for Medicaid nursing home benefits.

The Deficit Reduction Act of 2005 was passed by the United States Congress in 2006. It was set to save close to forty billion by cutting the spending of programs such as Medicare and Medicaid. The Deficit Reduction Act directly affected the Medicaid program by increasing the look back period from three years to five years. Any questions regarding the Deficit Reduction Act may be directed to the Experts.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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16356563
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Tax Professionals are online & ready to help you now

Wallstreet Esq.
Tax Attorney
Satisfied Customers: 570
10 years experience
Wendy Reed
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15+ years tax preparation and tax advice.
Mark D
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MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Recent Deficit Reduction Questions

  • I am the 100% owner of an S-Corp. I have a room in an apartment

    I am the 100% owner of an S-Corp. I have a room in an apartment I purchased that will be dedicated as an office to run my business out of (approx 20% of the total sq. ft.) I understand that the accountable plan method is the best way to take a deduction for the office as an S-Corp owner, so I set up an accountable plan in writing to reimburse myself for my "home office" expenses starting next month.
    I have two questions I am looking for clarification on...
    1. Based on various articles online, the consensus seems to be that I can submit an expense report for the business % of my housing expenses like utilities, monthly HOA fees, etc. Some sources say to still take 100% of mortgage interest and taxes on Schedule A, and other sources say to reimburse the business % of mortgage interest and taxes through the Corp, and then reduce the Schedule A amounts by the amounts the Corp deducted. Is there a tax benefit either way of doing this? Are both acceptable methods?
    2. The consensus also seemed to be that you cannot reimburse depreciation through an accountable plan, which I guess would make sense. My question is though - I am doing a renovation on the apartment, part of which includes renovating the office area. I know I can put assets like office furniture on the books and depreciate them, but what about the renovation cost itself?
    The cost for the office renovation is about $10,000, so I would need to amortize it somehow. What would be the proper method based on this scenario?
    Thanks!
  • An employee is going to be a partner of an LLP company next

    An employee is going to be a partner of an LLP company next year. This year, her year-end bonus of $4500 will vested at 25% per year over 4 years as her partnership capital. Is the bonus going to be paid out with taxes taken out or can she get a check for the full $4500.00.
    She will also get paid for her unused vacation. The total gross pay-out is going to be roughly $4000. She will also add that to come up for her capital in the business. I have the same question, should we cut a check for the full amount or should I run this with payroll so taxes can be taken out.
    If she can get a check for the full amount without taxes taken out, am I to provide 1099 or should I still report that with her w2?
    Please advise.
  • I have the Articles of Dissolution as filed with the GA Sec

    I have the Articles of Dissolution as filed with the GA Sec of State and the Certificate of Dissolution that the GA Sec of State granted us. Do these items constitute the requirement to "Attach a certified copy of the resolution or plan and all amendments or supplements not previously filed" when filing IRS Form 966?

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