By Sean R. O’Connell, CPA/PFS, CGMA
The Internal Revenue Code is a comprehensive body of tax law for the United States. It is organized into different titles, subtitles, chapters, subchapters, parts, and sections, with Section 7874 as its highest numbered section.
As a tax practitioner for the past 38 years, I have served as an advisor and planner for hundreds of American taxpayers, and know the Internal Revenue Code inside and out. To save you the time of reading through over 4,000 pages, I have summarized those Code Sections that, in my opinion, are the Greatest of All Time.
What you may find especially interesting is that all of these G.O.A.T. Code sections are all currently in effect!
Here is my list, in order, of the ten Greatest Code Sections of All-Time:
| Rank | Code Section | Topic | Who Benefits? | What Makes this Code Section “Great”? |
|---|---|---|---|---|
| 10 | 1031 | Like Kind Exchanges | Real estate owners | Those who sell real estate can defer taxation on the gain if they purchase “replacement property” within six months of the date of their sale. While this provision used to apply to all types of investment and business property, the Tax Cuts and Jobs Act limited its application to real estate, effective January 1, 2018. Don’t miss this PBMares resource on avoiding capital gains tax from Like Kind Exchanges. |
| 9 | 25C | Energy Credits | Homeowners | A tax credit of 30 percent of the cost of energy improvements, up to $3,200 per year. The 30 percent credit for solar panels has no maximum dollar limitation. |
| 8 | 529 | Qualified Tuition Accounts | Funders of education costs | Investment earnings from these accounts are not taxable when funds are withdrawn for education costs. Many states also provide a state income tax deduction for contribution to these plans. |
| 7 | 179 | Election to Expense Property | Businesses owning property | Business owners can elect to expense up to $1,160,000 of property placed in service in 2023, up to the amount of their business income. |
| 6 | 168(k) | Bonus Depreciation | Businesses owning property | 80 percent of the cost of business property (other than real estate) is deductible in 2023, and there is no maximum dollar limitation. This provision applies regardless of the amount of income or loss from that business. |
| 5 | 121 | Exclusion of Gain from Sale of Residence | Homeowners | Those who have owned and lived in a home for two of the previous five years can exclude up to $250,000 of the gain from sale. For those filing jointly, that’s a gain exclusion of up to $500,000. |
| 4 | 501(c)3 | Exempt Organizations | Donors | Money or property contributed to these organizations is deductible for the donor. When appreciated property is donated, no one pays tax on its appreciation. Taxpayers who transfer money or property to a Donor Advised Fund get a deduction up-front, even if monies don’t get distributed to charities until years later. Unreimbursed out-of-pocket expenses that directly benefit a charity are deductible. For example, scout leaders can deduct the cost of uniforms (and cleaning), along with volunteer mileage. |
| 3 | 401(k) | Qualified Retirement Plans | Employees | Employees can defer up to $22,500 of their earnings. Those age 50 or older can defer up to $30,000 per year. In addition, all of the earnings in these accounts are tax-deferred. |
| 2 | 199A | Qualified Business Income Deduction | Business owners with profits | Up to 20 percent of a business owner’s taxable income can be free of federal income tax. |
| 1 | 408A | Roth IRAs | Savers and Investors | Not only are the earnings completely tax-free for life, there are no Required Minimum Distributions. Anyone inheriting these accounts can keep them for ten additional years. |
Questions to ask to determine if one or more of these Code Sections might apply to you include (but are not limited to):
- How can I add funds to a 401(k) or Roth IRA?
- Should I convert my IRA to a Roth IRA?
- Might I contribute money or appreciated property to an exempt organization? Or, to a Donor Advised Fund?
- Should I make energy efficient upgrades to my home or business?
- Could I invest in a 529 account for a child or other family member?
And for business owners:
- Do I need to purchase additional property?
- Should I add equipment before the end of 2023?
If some of these tax strategies aren’t on your radar yet, they probably should be! Schedule a conversation with your tax advisor as soon as possible to find out how to add one (or more) of these G.O.A.T.s to your tax portfolio.
For more information, contact Tax Partner Sean O’Connell, CPA/PFS, CGMA.
