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Tax Exemption Questions

Tax exemption allows a certain amount of deduction of tax against the taxpayer's income during the computation to arrive at the taxable income amount against which the tax rates are applied to compute the income tax under the prescribed law. It is also can be referred as personal allowance which is claimed by a taxpayer to reduce his/her taxable income. The exemption amount is calculated by taking the taxpayer’s financial obligations towards his/her dependants like spouse and kids, mortgage interest and charitable contributions etc in to account. In U.S, the laws pertaining to tax exemption varies from states to state. State rules to calculate taxable income may differ from federal rules. To know more about issues related to tax exemption, read below the answers provided by Experts.

What is homestead tax exemption

Homestead tax exemption is calculated after excluding part of the home’s value from taxation to lower the taxes. The home owner’s principal residence qualifies for such exemption. It provides exemption from property taxes. Different states in U.S provide various degrees of protection under homestead tax exemption.

In the U.S up to what amounts can a bona fide residence of foreign country have tax exemption? What are the other norms related to this?

A bona fide resident of a foreign country can have tax exemption benefit up to an income of $95,100.00 for the year 2012. This is called Foreign Earned Income Exclusion and it keeps changing every year. The beneficiary should be physically present in a foreign country (out of U.S) for 330 days in a year to qualify such exemptions. However, the rules also state that the beneficiary can be present in U.S for 35 days during the same year and still can avail the benefits under the exemption.

Is it mandatory for a corporate house to have separate legal entities for each of its separate business units to qualify for tax exemptions? Does it help in availing better advantage of tax laws and exemptions?

Generally it is not mandatory for a parent corporate organization to have exclusive legal entities for each of its different divisions for exemption purpose if all the units qualify for favorable tax treatment. However, it is always advisable to have separate legal entity if a particular unit of the group company is exposed to maximum liability.

What is the tax exemption rule pertaining to capital gains in real estate?

As per norms prescribed by the Internal Revenue Service bureau, any capital gain from real estate below the mark of $250,000 does not have any tax impact. But, the mark goes up to $500,000, if the seller of the real estate asset is a married person.

The issue involving tax exemption is quite critical as it involves certain degree of legal aspects. This apart, Internal Revenue Service bureau keeps changing rules and regulations related to tax exemption year by year. Various states have their own set of rules which differ from federal rules. The changes alone can cause questions to arise for someone not experienced in tax laws. To have a better clarity on this issue, it is always good to consult an Expert who can answer your queries.
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