LSmith33

Thank you both for your input.

I had an issue come up this year with one of my clients. She bought a brand new house in Spokane, WA for $305,000 in 2005. She invested $21,000 to finish the basement (was unfinished when she bought it) and shortly thereafter she had issues with drainage and flooding and the whole basement was torn apart. She spent another $6,000 in clean up costs and eventually sued the builder and won. She received a settlement of $95,000 in May 2008. She had sold the house at a huge loss ($225,000) in March 2008. (Fully disclosing the drainage issues, which per an engineer she hired, pretty much cannot be fixed.) My question is the settlement income. I found a very brief publication (#4345) on IRS website discussing the taxability of settlements. In the pub it states that settlements of this nature (Loss-In-Value of property) may be taxable if the settlement exceeds the adjusted basis in the property. I'm confused as to what that basis should be. Would it be the basis in the basement only or the total adjusted basis of the house? I haven't found much else during my research on this matter and thought I would throw it out here for discussion/input. I realize it's the 14th and I don't expect an immediate reply. I have prepared the return using the basement basis only and filed an extension until I can research it further. I'd appreciate any thoughts or directions suggested. I want to make sure that I take the correct position on this. Thank you. ~Laura J. Smith, EA Bayberry Accounting & Tax Service Bellingham, MA 02019

Thanks, RoyDaleOne. With your help I found what I needed.

My client has a non-residential rental property (office building). He installed 3 furnaces last year. What is the recovery period on the furnaces? I thought it was 39 years (same as building). I can't find anything in the pubs that address that specifically. Thank you. ~Laura Smith, EA

Thanks for your input.

My client owns three houses, one is his personal residence and the other two were purchased for his kids to live in. He took out a mortgage against his personal residence of $200k to buy the third house in 2007. To pay the mortgage off, he would like to sell the 2nd & 3rd houses to each kid for $100k each. If he did that would any gain (no loss because of related party) be figured on the price of $100k and then the difference between sale price and FMV considered a gift or does that not even come into play? One of houses was purchased in 2000 for $60k (FMV per client $250k), the other was purchased in 2007 for $220k (FMV per client $350k), plus he's done a lot of improvements on that house. Help? Thanks, ~Laura Smith, EA

I got the same error when I filed one of my corp's yesterday too. I wondered about that and then thought maybe the client had went somewhere else and had them file the extension... I guess I should assume the extension has not been filed... ~Laura Smith, EA

New client this year, married couple. They live in Massachusetts and own rental property in NY with rental losses in 2005 & 2006 totaling $2,935 (bought property in 2005). Previous preparer did not file NY returns for 2005 & 2006. Should they have filed (and can they still file) to establish a loss carryforward on the NY property? I read in the NY instructions that you can have a NOL as a NY non-resident even though there is no federal NOL. They do have a small rental income this year of $105. I realize they may not be required to file in NY, but my concern is being able to offset any future income with the losses. I completed form IT-203 for 2005 & 2006, and found a worksheet for part-year residents where you can allocate non-NY income and NY non-resident income, but they're not part year residents. They've never lived in NY. So I don't know if this is the correct sheet to use. There is a statement of NY Non-Residency that I found as well, but it states "The taxpayer is domiciled in __________ and is on temporary assignment in the US", etc etc. They're not on temporary assignment. They live in Mass and have non-resident NY income/losses. Help! I'm very confused. Is this worth it? Thanks! ~Laura Smith, EA

I haven't seen any of my clients with dcb benefits yet, but thanks for the heads up. I will remember that when they come in. ~Laura Smith, EA

I've had problem with MA acknowledgements since Jan. I still have a bunch that haven't come through yet. I do check them on ATX's website to be sure they were accepted, but I found one today that was rejected a couple of weeks ago and of course did I know? No, not until my client called to see where her refund was.

I have a client whose parent came from Romania to live with them for part of the year to help with their new baby. Can they claim the parent as a dependent? Thanks, ~Laura Smith, EA

Thank you both for responding to my inquiry. I appreciate your input. ~Laura

The tax was coming in lower due to the federal deductions she has as well. In computing the MFS federal return, she would have to itemize if her spouse itemizes, so she was entitled to some deductions. I would assume that even though they are filing a joint return, that in creating this mock separate return I would be able to use itemized deductions for her portion of state taxes paid, etc and force it as itemized? ~Laura

Are there any VA preparers here who could help me on a non-resident return? My clients are a married couple living in Massachusetts. The wife has income from a VA source of $3,682 with $146 withheld on the VA wages. Per the VA website instructions for Form 763, she should file a MFS VA return since both are non-residents and only one spouse has VA source income. I also read that even though they are filing a joint federal return, a separate federal return should be completed for the spouse that has the VA source income allocating all of her income to the separate federal return. On page 2 of the 763, I also allocated the VA source income. I have done all of that and I'm confused. I assumed that she would receive all of the withholding back but the return says she has a $60 tax due. Is this right? Am I missing something? Her VA income is less than the threshold required for filing, but the return seems to be taking all of her income into consideration. I just need someone to verify all of this with me. Thank you! ~Laura Smith

The efile form was approved for Mass tonight, but when I went to create the efiles for my clients it said that the HC and XYZDI forms were not approved for efiling yet... the saga continues....