Month: January 2026

Many taxpayers panic when they hear the term “depreciation recapture” and decide to skip depreciation on a home office to avoid future tax. 

That strategy usually backfires. The tax law creates unexpected consequences when you claim zero depreciation, and those consequences often cost more than the recapture tax you tried to avoid.

When you skip depreciation, the IRS applies the allowed-versus-allowable rule. The depreciation you claimed counts as the “allowed” amount. The depreciation you should have claimed counts as the “allowable” amount. If you claimed zero depreciation but should have claimed $5,000, the tax law treats those amounts as different. That difference creates two problems.

First, you lose real tax deductions today. By skipping $5,000 of depreciation, you voluntarily increase your current tax bill. 

Second, the tax law still treats the $5,000 as depreciation when calculating your gain on sale. That $5,000 reduces your basis in the home, which can increase your taxable gain later. In the wrong situation, you pay tax twice: once by losing the deduction and again through a higher gain.

The good news is that your prior tax returns protect you from depreciation recapture if you claimed zero depreciation. Section 1250(b)(3) allows you to use the amount actually claimed when calculating recapture. Your home-office deduction Forms 8829, which show zero depreciation, serve as adequate records. As a result, you avoid the unrecaptured Section 1250 gain tax on depreciation you never claimed.

But the law does not extend that same relief when you compute gain on sale. For taxable gain purposes, the IRS requires you to reduce your basis by the allowable depreciation, even if you never claimed it. That rule can push your gain above the Section 121 home-sale exclusion and trigger capital gains tax.

Despite this complexity, skipping depreciation rarely makes sense. Depreciation delivers immediate tax savings and valuable cash-flow benefits. The recapture rate often runs lower than your current income tax rate. You can also defer recapture through a Section 1031 exchange or eliminate it entirely with a step-up in basis at death.

The bottom line remains simple: Do not skip home-office depreciation. Claim the deduction, use the tax savings now, and plan intelligently for the future.

If you want to discuss home-office depreciation, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• January 9, 2026

Your tax refund will no longer arrive by paper check. The IRS recently announced that it will stop issuing refund checks, with limited exceptions, and will require taxpayers to receive refunds electronically.

Why the Change?

Paper checks cost more, create security risks, and take much longer to process. In addition, the Trump administration directed all federal agencies to eliminate paper check payments.

What Stays the Same?

The IRS has not changed the process for filing your tax return. You will continue to file exactly as you do now.

How to Receive Your Refund

The fastest and most reliable way to receive your refund is through direct deposit into your bank account. Ninety-three percent of taxpayers already use direct deposit, and this change will not affect them.

If you currently receive refund checks, switch to direct deposit when you file your 2025 return. Simply enter your bank’s routing and account numbers on your tax form.

If you prefer not to use direct deposit, you can choose certain mobile apps or prepaid debit cards that provide a routing and account number.

The IRS will still issue a paper check if you request a waiver because you lack access to banking services or electronic payment systems. Keep in mind that paper checks take at least six weeks to process, while electronic refunds typically take about 21 days.

If You Need a Bank Account

You can open an account online through several resources:

• The FDIC’s GetBanked website
• The National Credit Union Administration’s Credit Union Locator
• The Veterans Benefits Banking Program (for veterans only) 

Paying Taxes

For now, the IRS will still accept tax payments by check. However, electronic payments remain the faster and more reliable option. To review all electronic payment methods, visit the IRS Make a payment web page.

If you want to discuss tax payments and refunds, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• January 6, 2026

You plan to send holiday gift baskets to colleagues, referral partners, and select customers, and you want to deduct the cost. You can take a deduction, but the IRS limits you to $25 per recipient per year. 

This rule comes straight from 1962, and lawmakers have never increased the limit—even though real-world prices have climbed dramatically over the past six decades.

You may give a much more expensive basket if you choose, but you can deduct only the first $25. If you maintain separate business relationships with both spouses, you may deduct $25 for each person. 

The IRS does not let you treat higher-value packaging or decorative containers as “incidental,” so those items count toward the $25 cap. However, you may treat shipping, sales tax, and basic wrapping as incidental because they do not add significant value to the gift.

To protect your deduction, you must keep simple records. For each gift, write down the cost, the date, the description, the business purpose, and your business relationship with the recipient. You can easily explain the business reason: you strengthen colleague relationships, encourage referrals, and maintain customer loyalty.

The real problem comes from the outdated limit. A $25 cap from 1962 equals roughly $268 today when you adjust for inflation. Meanwhile, everyday costs from cars to postage have increased many times over. Congress never updated this rule, and it now creates an unfair result for business owners who want to maintain normal professional relationships during the holiday season.

You have two practical options: First, you can urge lawmakers to fix this problem. A simple inflation adjustment would bring the deduction cap into modern reality. Second, you can choose to keep each gift at or below $25 and guarantee a full deduction. Many business owners take this approach and focus on thoughtful but modest gifts.

If you want to discuss business gifts, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• January 2, 2026