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....

I emailed ATX and the response was that they are still working with Massachusetts and don't have a definitive date when it will be available. Nice, huh?

I noticed that too and love it! Makes life somewhat easier. Anyone seen the client instructions they've put together? I wish I could customize a little more, but it works well too. In the past I always created an instructions sheet in Word for every return. The new instructions will also save more time for me.

And he is claiming the exemptions for the kids.

He went back to court and obtained custody and the ex-wife got alimony.

Taxpayer divorced in 2006 (final March 2007). Kids lived with ex-spouse and custody was split. The kids spent more time at taxpayer's so taxpayer filed for and got full custody in Aug. 2007. Can he claim the HOH status this year? I'm thinking yes, because even though custody was from Sept on, they still were with him the majority of the time prior to custody. Would that be enough to meet the 6 month requirement? He was paying child support until Sept, then when he obtained custody the payment became alimony. Any thoughts? Thanks.

Especially since we've never had to wait this long for MA efile before!

I found the option to change the mailing slip format under print preferences but now the client mailing slip is not printed by default. Does anyone know how to get this to be printed? I thought it printed by default if you selected it on the client letter options but I checked last years returns and when I selected the option to print, it was not checked off. I don't remember manually checking that form. The software this year seems to be different. I don't know, is it me?

I am working on some returns and I noticed that the mailing slips (client & return) formats are changed. Has anyone else noticed that? The return address is now on the top left margin instead of the middle center as it was last year. I really wouldn't care so much but I just ordered and still have a bunch of the old envelope format and planned to use them for this season. Now they change it? I've wasted my money. What a pain in the neck! I'll have to see if there's a way to customize the mailing slips to the old format.

Does anyone know when the 2007 ATX software will be shipped/available? I was just wondering because I thought we got it earlier last year than in prior years. I want to say around the end of November? I just can't remember. I checked on their site under My Account but nothing is listed for last year or this year. Thanks, ~Laura

I have a client with a similar situation. Originally I had been taking a loss on the property, but then I read Publication 527. On Page 5, under Personal Use of a Dwelling Unit, it states "If you used a dwelling unit for personal purposes, it may be considered a 'dwelling unit used as a home." If it is, you cannot deduct rental expenses that are more than your rental income for the unit." On page 6, it lists the Dwelling Unit Used as a Home, with some examples that seem to fit your scenario. I felt that it fit my client's and I stopped deducting the losses and actually went back and amended the prior returns. The client and his tenant both occupied one bedroom each and then the rest of the house was 50/50. I split the mortgage, taxes, utilities, etc. 50/50 and also claimed depreciation for 50%. However, I did not take a loss as stated in Publication 527. I haven't looked at the Morcos TC Summary so I don't know what information that gives. Hope this helps! ~Laura J. Smith, EA