DANRVAN

It is either classified as nonresidential real property (most likely); or falls under "Asset Class 15.0" which includes assets used in the construction industry with a 5 year depreciation life. Asset Class 15.0 would be a sure thing if the shed was portable and moved from job site to job site. Otherwise it could be argued that the structure is attached to the land by it own weight and for an indefinite time period. 15 year life would fall under Asset Class 00.3; Land Improvements which are also permanently attached to the land. The shed does not qualify as an improvement since it is a building with walls and a roof. A 20 year life is not appropriate under Asset Class 01.3; Farm Buildings. In that case I would use 5 year life under Asset Class 57.0 for assets used in "Distributive Trades and Services".

Yes, since they do not have a base period to meet the 25% test. Yes, Sept, Oct, or Nov year end. Is there a reason for choosing another year end date?

That raises a couple possibilities. (a) The house could have been overvalued by $200,000 or (b) The house was sold for less than FMV and the difference should have been reported as a gift.

1250 gains are treated differently than 1245 gains and not subject to depreciation recapture in year one of installment sale. 1250 is sort of a hybrid, taxed at a maximum capital gain rate of 25%, thanks to the strong lobby arm of the real estate industry.

Code section 1014(a).

They need sound legal advice; as well as tax advice.

She has a duty to file the final tax return and pay the taxes for the decedent; whether she files jointly or separately.

Not in every situation, it could be considered marital property for estate purposes (and divorce) depending on how the stocks were acquired, or where the source of funding to purchase them came from. For example, if he bought the stocks using money he earned while they were married it is considered marital property. In that situation wife has an ownership right.

You "step into the shoes" of the decedent for assets producing income in respect of the decedent, IRD. IRD includes such items as: installment notes receivable, IRA accounts,....... investments in annuities.

Parents gifted the contribution?

So that must mean he either contributed more than $6,000; or contributed up to $6,000 but his earnings were less than contributions? I am not following this part either for new grad note making a lot of money. So assume he did not earn $xxx,xxx and hit the income limitation.

I am not I am not following the sequence of events here at all Margaret. But I am almost certain the penalty applies only to earnings in the case of a Roth. $250 does not sound like 10% of earnings to me.

or date of disposal if within 6 month.

The TCJA eliminated NOL carrybacks and permitted NOLs to be carried forward indefinitely. The CARES Act changes those rules temporarily by permitting NOLs incurred in 2018, 2019, or 2020 to be carried back for five years to the earliest year first and suspending the 80% taxable income limitation through 2020. This is all spelled out in section 172. There are special rules for farming.

I have not had any practical experience, but that is about to change with new client last week.

To clarify, the alternate 6 month valuation is an election per section 2032 made with a timely filed form 706. In order to use the alternate valuation date, the value of the gross estate must have decreased since the date of death. Therefore an appraisal must also be made at DOD to determine if there is a decrease in value. The only practical purpose for the election is to decrease the amount of estate taxed owed. When the election is made, any assets disposed within 6 months of date of death are valued at date of disposition; all other assets are valued at 6 months from date of death. If the section 2032 valuation is used, then the basis for gain or loss is determined at six months from DOD.

But per the uniformity of basis rule 1.104-4 the basis to the estate passes to the heir.

Depending on how far out the sale was from DOD, I might get an opinion from realtor to see if there was a significant change in real estate market since DOD.

The proper way to correct this would be to file a 1040x. I would not count on that.

You can elect to use the alternative valuation at 6 months after date of death per section 2032 if the value of the assets has decreased since date of death; and if an estate tax return is filed. Section 2032(a)(1) allows the use of value on date of disposition if the asset is disposed within 6 month from date of death.

Inventory does not qualify for sect 453 and depreciation on equipment is subject to recapture in the year of sale. If equipment was fully depreciated then 150,000 for equipment and 50,000 for inventory would be recognized in the year of sale.

Looks like preparer has several things to explain......

Why would you need any more documentation if the note clearly states that $100,000 of the $500,000 principal is allocated to the covenant? Then clearly one-fifth of the payments are also allocated to the covenant. That article is not relevant to this situation. The allocation has already been made and there is no reason to question it.

Have him ask for the code section or authoritative source, or ask how section 453(b)(2) applies in his situation. Looks to me like $20,000 (1/5) would be reported in 2022.

That looks clear to me, as you stated in your 2nd post $100,000 was allocated in the contract. Look at sec 453(b)(2) which does not indicate the covenant is excluded from installment sale treatment. It is ordinary, see RR 69-643