mgmea

A gift.....is a gift.......UNLESS it is a gift with a retained interest. Then, under IRC Sec 2036, the transferred property is includable in the decedents estate and gets a stepped up basis to FMV at date of death. Please note that while the code section is titled "Transfers with retained life estate" a formal life estate is NOT necessary to achieve this result. The elderly parent transferred the home to a daughter and the elderly parent continued to live in the home until the elderly parent died. The elderly parent transferrred property and retained the possession or enjoyment of the property for a period which did in fact not end before his or her death. Ooopppps........now the daughter actually gets a stepped up basis to FMV at date of death under 2036. Now if only I got a dollar every time someone answered this question that a gift is a gift, I'd be basking on a beach somewhere instead of doing taxes......lol.

True, but isn't that because the tax code and Social Security have different definitions and requirements for "permanent and total disability"? If a "disabled" person worked full time for 9 months at a meaningful job, while on Social Security disability, I think the IRS would not consider them "permanently and totally disabled" for purposes of 152©(3)( and 22(e)(3)? This still leaves the OP to determine whether the doctor's disabilty statement meets the requirements of 22(e)(3) and whether working 13 hours a week constitutes "engaging in any substantial gainful activity". The former is relatively simple, the latter is why we get the big bucks. PS: For some reason I'm getting a smiley face in my post where it should be a B

If the child is permanently and totally disabled, the child could be any age and have unlimited income and still be a qualifying child and a dependent, as long as the child didn't provide over half of their own support. The definition of "permanently and totally disabled" for dependent purposes is the same definition used for purposes of the disability credit on Schedule R, per IRC Sec 22(e)(3). "Unable to engage in any substantial gainful activity" is not a basic definition by any means, it is the only definition available in the code and regs. If you are "unable to engage in any substantial gainful activity" and meet the other requirements of 22(e)(3), you are permanently and totally disabled for purposes of Sec 152©(3)(. It appears that the Secretary is only requiring completion of the disabilty statement from the doctor found in the instructions to Schedule R to meet the requirement of 22(e)(3)? Now the problem comes up when a doctor certifies that a person is "Unable to engage in any substantial gainful activity" and meets the other requirements of Sec 22(e)(3), and then the person goes out and works. Then it becomes a facts and circumstances test of whether the person is engaging in a "substantial gainful activity". If this were my client I'd have to dig up some court cases to determine what the courts think "substantial gainful activity" is. Good summer reading.

Where's Bob Kamman when you need him........lol The gross income test is not applicable to a qualifying child who is permanently and totally disabled at any time during the year. Per IRC 152©(3)( Special rule for disabled.--In the case of an individual who is permanently and totally disabled (as defined in section 22(e)(3)) at any time during such calendar year, the requirements of subparagraph (A) shall be treated as met with respect to such individual. Heres IRC 22(e)(3): Permanent and total disability defined An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require. So far no mention of any requirement that the child must be receiving SSI to qualify. IRS Publication 524 appears to be the only easily available guide as to what the Secretary requires for proof of permanent and total disability. If this were my client I would study Publication 524 for the definition of permanently and totally disabled and the examples given therein for what contitutes substantial gainful activity. I'd also ask the client if any of the child's income was earned before the child became disabled, how long has the child been disabled, has the child ever applied for SSI or SS disabilty and been turned down before. I feel there are too many unasked questions in the OP's post to to state categorically that the child is not permanently and totally disabled.

Did the decedent gift the house to the heir before death? Did the decedent continue to live in the house until death? If so, under IRC Sec 2036, this is a transfer with a retained interest and gets a stepped up basis to FMV at date of death. A formal life estate is NOT required. See the Form 706 instructions page 15 for an example of this situation.

But I believe the answer is "YES" that they will still have a 3K capital loss carryover to the next years return in this situation. If the OP is simply subtracting 3K each year from the carryover capital loss they may be making a very grave error. You have to use the capital loss carryover worksheet to determine how much of the loss is used up each year. If a single person has 5K of wages and a 3K capital loss and nothing else on their 2007 tax return, they will have a 3K capital loss carryover to their 2008 tax return.

Let's see if I can post a clearer link to Reg 1.121-4 this time, where it states in (e)(1) that the Section 121 exclusion is available for a sale of a partial interest. Reg 1.121-4

Actually, I believe it is quite clear that under Reg 1.121-4, one can sell a partial interest in their principal residence and claim the Sec 121 exclusion on it. You can even sell it to a related party and claim the exclusion, as long as you aren't selling a "remainder interest" to a related party, which only comes about with life estates and such. You can find the text of Reg 1.121-4 at and then search for "1.121-4"

Taxpayer is a beneficiary in a deceased relatives will of a bequest of a specific amount of money. While the estate is being probated, but before any check is issued to the beneficiary, is this bequest considered an asset of the taxpayer for purposes of calculating insolvency for determining taxablity of cancellation of debt income?

Actually, the parent has the life estate and the children are the remaindermen in this example. Off the top of my head, I recall being told by an experienced elder care attorney that if the life estate holder sells the home before death, the entire amount qualifies for sec 121 exclusion. The remaindermen (the children) do not have an ownership interest until the life estate holder dies is how I recall it was explained to me. This may vary depending on state law. I would advise you to check with an experienced elder care attorney in your area. I would also advise the children selling the property to make sure their real estate agent knows what they are doing as a property subject to a life estate will not sell for anything near fair market value, if in fact the children are selling the home, as opposed to the parent selling the home. If they get the life estate taken off, they may have just erased any chance for sec 121 exclusion on the whole value for the parent.

Life estates usually involve a parent gifting the house to the children while retaining a life estate in the house. In this situation, under IRC 2036, when the parent dies, the full FMV of the house at date of death of the parent must be included on a federal estate tax return. As such, it gets a step up in basis to full FMV at date of death of the parent. This may all change in 2010 if the scheduled estate tax changes go through.

Water heaters used to just heat water for residential hot water useage use go on line 5a. But, the instructions for line 5a include; "A natural gas, propane, or oil water heater that has an energy factor of at least 0.80." The key is the requirement for at least a .80 energy factor. This generally requires an "on demand tankless water heater" to get to a .80 or above energy factor. The energy factor of the water heater is on the energy star sticker on the water heater, or it is available on the manufacturers web site. All of the tank type high efficiency water heaters my clients have purchased have fallen short of the .80 energy factor. There may be a tank type water heater that has a .80 or higher energy factor out there, but it would be a rare bird. A hot water heater used as part of a hot water heating system could conceiveably go on line 5b. The problem would be the requirement for an "annual fuel utilization efficiency rate of at least 95." Water heaters are not marked with "annual fuel utilization efficiency ratings", they are marked with an "energy factor". Even if you assumed these energy ratings were the same, good luck trying to find a hot water heater with at least a 95 rating.

Just complete the bank information for extension payments at the bottom of the payment and refund worksheet of the 1040EF Info form. You'll also have to complete a Form 8878 and have the taxpayer sign it I believe. Then, when you click on create e-file, just check the box for federal extension only. Just make sure you only check federal extension in create e-file. MGMEA