DANRVAN

16 hours ago, Corduroy Frog said:

So those in the high income bracket simply open up a conventional IRA, deduct it, and then recharacterize the thing into a Roth in a couple days or so

But there are potential pitfalls that would not occur if a front door roth contribution was made.

For a taxpayer with existing traditional IRAs, the recharacterization can become a significant taxable event due to the pro-rata rule.

Also need to keep in mind the 5 year rule.

18 hours ago, ILLMAS said:

To close out the bank account and distribute the funds

That would be a corporate liquidation where the shareholder exchanges his stock for remaining assets.

So your client would have a capital gain equal to $20,000 less basis in stock per section 331(a).

Technically, form 966 should be filed and 1099-div showing the $20,000 liquidating cash distribution in the specific box.

Final paper work also needs to be filed with the state.

7 hours ago, BulldogTom said:

5.       Commandment #5

Looks like your are engaged in Client Advisory Services (CAS) at level II or level III.

CAS is recognized as a specialized area of practice by the AICAP.  It would be a violation of ethics for me to perform that level of CAS without proper training or experience.

At a minimum, would need work with client for a year or two at level one before advancing to the next level and give out that kind of advice.

On 8/12/2021 at 3:56 PM, Margaret CPA in OH said:

As it was clearly below market rent (or was it?  may have been uninhabitable for most folks) does that come into play with no deductions?  Or was 0 rent in lieu of hiring someone to oversee the project and secure the property? 

I think it would be hard to justify $0 rent as fmv from brother.  How much time did he actually spend overseeing the project?  I would probably draw the line on Jan 2021 for placed in service.

On 8/12/2021 at 3:56 PM, Margaret CPA in OH said:

bought a new phone and separate line for $1000, logo, business cards, Google GSuite, and IPad for $1200.

Can she prove they were ordinary and necessary per sect 162 as well as percent used for the rental?

On 8/12/2021 at 3:56 PM, Margaret CPA in OH said:

neurosurgeon earning $500,000 and needs to put some money somewhere.

So no rental write off due to PAL limitation.

On 7/31/2021 at 8:30 PM, Corduroy Frog said:

$30,000, so the amount of losses released can only be $30,000, not $45,000.  I don't know what kind of basis is passed on to the beneficiaries.

The allowable loss is 45,000 - 30,000 = 15,000.

Section 469 does not change the amount of step up in basis.

On 7/29/2021 at 8:37 AM, TAXMAN said:

Attorney indicated that would be his way of doing it and issued 2 1099's respective of their share of proceeds.

So is there going to be a closing statement showing who was the actual seller/owner of the property sold?

On 7/29/2021 at 8:37 AM, TAXMAN said:

I am inclined to skip over all the gift scenarios and treat it as a sale to the buyers.

If mom is compensated for fmv of her property, then the net tax result would be the same, although son would be the actual seller of the property mom deeded to him.

6 hours ago, taxmanrick said:

would be best for W to see an attorney and/or CPA

Attorney for sure, given the dollar amount involved she needs legal advice which we as CPA's cannot give out.

6 hours ago, taxmanrick said:

solely to ensure that there were two names on the deed.

Although a moot point now, why was that necessary?   Was an attorney involved?

The estate may or may not have any ownership depending on whether B held Joint Tenancy or Tenancy in Common, that is where legal advice is needed.

On 7/30/2021 at 6:37 PM, Sara EA said:

Gifts made within three years of death are included in the estate,

14 hours ago, cbslee said:

"The gift itself is only included in the total estate value, to the extent the gift is more than $15,000. Therefore, if a gift is made within 3 years of death, 

Actually the gift is only included in the estate if the decedent retained an interest in the asset or revocable power per section 2035.

6 hours ago, BulldogTom said:

the essence of the deal is that Mom sold property to son for $170K.

If fmv of mom's property was greater than 170k, then partial sale and partial gift.

9 hours ago, TAXMAN said:

(Closing slated for Aug 2021 property sells for 610k).

How much of that was for mom's property?

9 hours ago, TAXMAN said:

Is this an incomplete gift being treated as though it never happed and mom gets taxed on 170k? or is it possible that mom has a gift to son and then son  gifts to mom.(sounds like a sham) and son would pay tax on entire proceeds?

It is a part sale / part gift.  See § 1.1015-4 for details.

per reg 1.911-3(a)

 Earned income is from sources within a foreign country if it is attributable to services performed by an individual in a foreign country or countries. The place of receipt of earned income is immaterial in determining whether earned income is attributable to services performed in a foreign country or countries.

On 7/11/2021 at 7:10 PM, BulldogTom said:

Any income paid to him from Country A employer while he is in the US is not eligible - Correct?  The income has to be paid to him while overseas - Correct?

That does not sound correct if the income was earned outside of the USA.

The code or regs should clarify.

20 hours ago, jklcpa said:

Donor should provide detailed calculations of the basis gifted to sibling because the character of any future gain or loss on that gifted portion will be the same as if donor disposed of it.

Judy I don't believe that applies in this case since the IRS reg's take a front loading approach to a partial gift/sale transaction (basis is first applied to the sale) versus the apportionment method.

In this case, since the basis in hands of transferee is less than transferor, then carry over of character rules should not apply.

I am sure that is spelled out and buried in the 1250 regs but don't have time now to look it up.

If on the other hand the IRS had adopted the apportionment method, the basis would be split between the sale and gift.  The gift portion would then retain the transferor's character.

8 hours ago, ILLMAS said:

Has anybody called and asked for it to be waived?

A phone call won't work for a 990.

You have to make a written request and show some reasonable cause such as change in directors.

If the organization is run by volunteers that helps your case; as well as pointing out the financial impact of the penalty on the limited resources that would otherwise be used for charitable purposes.

You also need to outline the measures that will be taken to prevent future late filings.

It is a slow process.

1 hour ago, Abby Normal said:

I don't think you can choose to not deduct a traditional IRA,

Yes it is possible.

They can be used to make a "back door" Roth contribution when income is a limiting Roth factor.

1 hour ago, Saravia said:

I was under the impression parents needed to report and pay taxes on the "Gift"

You are correct, a gift tax return is required.

However, parents probably will not owe any gift tax.

45 minutes ago, DANRVAN said:

The child can continue to use parent's holding period for depreciation or restart the clock; 

Son will need to keep track of depreciation allowed or allowable by parents for any 1245 or 1250 gains.

20 minutes ago, Saravia said:

For the rental properties they purchased them back in 2000 - 50% parents and 50% the son. 

So technically in 2019 when they did the "Parent to child transfer" the parents only gifted their 50% since the son owned the other 50% already. 

That changes things.  

So son owned 50% all along and the remainder was gifted to him before parent died?

If it was a complete and legal transfer then be takes parent's basis on date of gift since fmv was higher than basis.

Parent will report income and depreciation from Jan 1 until date of gift on final tax return.   

6 hours ago, cbslee said:

If you have a Krispy Kreme near you

Two hours away, I think I will pass!

21 hours ago, Saravia said:

What is the correct way to handle this? Should anything have been reported to the IRS?

As I understand it, the child received 50% as gift and inherited the other 50%.

The basis of the gift portion is 50% of parent's basis (assuming fmv is higher).  The child can continue to use parent's holding period for depreciation or restart the clock; there is no authority that says it has to be done one way or the other that I am aware of.

For the inherited portion, child gets step up basis and a new holding period for depreciation.

In regards to the gift, you need to verify that a legal and complete transfer was made, otherwise child can take a full step up in basis.

21 hours ago, Saravia said:

passing away late 2019.

For 2019, income and depreciation is reported on final return for parent from Jan 1 until date of death.  For the remainder of the year it is reported by child (or estate if there was one).

21 hours ago, Saravia said:

2. Parent 2 transferred primary resident to adult child in 2020 - parent 2 continues to leave there. Does anything need to be reported to IRS, if so, what should they report?

Nothing to report. It appears parent retained a life estate in regards to the personal residence.

46 minutes ago, jklcpa said:

I do have one question for you though.  In your first and second lines, why isn't the $300K held in escrow included in the amount he received and why isn't it included in the amount he paid for the new property?

We took two different approaches to this and they are both correct, except I read the basis number wrong.

In regards to the 300,00, he did not receive it, it went to the buyer, so it is was not realized in regards to the "exchange".

From the perspective of the exchange, his new basis is the old basis plus what he paid in cash; or you can look at it as the 300,000 + 210,000 -22,500.   Either way you come up with the same answer.

On 5/13/2021 at 9:50 PM, Hahn1040 said:

it seems like a good idea for the RE tax on the raw land. 

4 hours ago, jklcpa said:

In a full tax-free exchange, the sale price $612,000 less adjusted basis of $277,500 = realized gain of $334,500.

The amount realized for the 1031 is the fmv of the property received plus the cash received= 510,000 + 312,000 = 822,000

That is reduced by what he gave up: property with basis of 227,500 and cash paid 200,000 = 437,500

Therefore the realized gain is 822,000 less 437,000 = 384,000.

As you mentioned he recognized gain in the amount of boot received = 312,000.

That leaves a deferred gain of 384,500 - 312,000 = 72,500.

The basis in the replacement property is  510,000 - 72,500 = 437,500   (or 227,500 + 210,000).

15 hours ago, Lion EA said:

What would be our due diligence? What do we ask for re value of house, ownership, mortgages, etc.?

Legal transfer and documentation comes first.