DANRVAN

On 3/20/2021 at 2:31 PM, Catherine said:

  I have no idea how to pass through a loss on a K-1 but also mark it as non-deductible.

I misunderstood and picked up in the thread that you had decided to call it an investment and a capital loss.

I don't think there is a method or any reason to report a nondeductible loss on the K-1; or for that matter on the 1041

On 3/19/2021 at 7:49 PM, Pacun said:

thought 3115 was a fix all form.

Not at all, that is a common misunderstanding.

As Tax Guy Bill pointed out, 3115 is used to change from an impermissible accounting method to a permissible accounting method.   Failure to claim any depreciation on an asset is an impermissible method, so form 3115 is filed to claim allowed or allowable depreciation under a permissible accounting method.  

On 3/19/2021 at 10:45 PM, joanmcq said:

there is a specific section of the 3115 JUST for depreciation errors.

Corrections due to calculations, posting or math errors are not accounting method changes and cannot be fixed on form 3115.  So for example if an incorrect placed in service date was used, that mistake could not be fixed on 3115.

On 3/20/2021 at 8:51 PM, cbslee said:

error/mistake occurs two years in a row that creates an incorrect method which can corrected by a 3115.

I believe that rule has changed, but only applied to corrections made to change from an impermissible method to a permissible method as Bill pointed out.

Previously, I think the impermissible method had to be used for two consecutive years in order to make the correction on 3115, otherwise the correction went on 1040X. 

2 hours ago, Catherine said:

does NOT transfer to beneficiaries?

except for year of termination

14 minutes ago, Abby Normal said:

they will definitely want to switch from draws to GP.

Agree, GP is more equitable.

3 hours ago, Pacun said:

Even if it was under his name completely and get full step up basis, you still have to deal with the depreciation allowed or allowable.

I question that.

The tax attributes of deceased spouse do not carry over to surviving spouse.  

For example capital losses and NOL attributable to deceased spouse can not be claimed by surviving spouse after the final joint return for year of death has been filed.

If business or rental property is solely owned by deceased spouse, then surviving spouse gets a full step up in basis.

Furthermore, at the time of transfer, the property has zero adjustments for tax attributes, it does not retain it's character for recapture.

If surviving spouse elects to file a joint return, then the only income and expenses reported by deceased spouse would be those  incurred up to his date of death.

Therefore the sale of the property after DOD is 100% attributable to surviving spouse (under the scenario above) and offset by her basis which does not retain the recapture attributed to the holding period of her husband.

Take care Bonnie and hope you get to feeling better soon.

1 hour ago, Pacun said:

Even if it was under his name completely and get full step up basis, you still have to deal with the depreciation allowed or allowable.

retracted my post for further review.

1 hour ago, Tracy Lee said:

She's an elderly lady and I think her husband who passed away in 2020 took care of all that. 

Looks like you have a 1/2 step up basis to start with.

Sounds like a prior tax preparer was involved, can you contact them for any additional information they might have?

As cbslee mentioned, the county should have information on the original purchase price and likely a valuation of the land vs structures.

Judy thank you for all the time and effort you put into moderating this forum and keeping us in line!

1 hour ago, NECPA in NEBRASKA said:

my husband and I have Covid.

I hope and pray a speedy recovery for both of you.

On 3/12/2021 at 9:32 AM, taxgirl26 said:

Need to find basis for sale of timber

To determine basis of timber you need to know:

-estimated age of timber sold

-volume sold

-growth rate for the species

-price per mfb date of acquisition.

You then work backwards to determine the volume and mill price at date of acquisition.   There lies the basis of the timber sold which you subtract from the land basis.

Another CPA I know uses the "Look Up" method.

That is where you look up at the ceiling and pull out a number.  That is evident from some of his work I have followed.

A timber cruise or appraisal will estimate the value of the standing timber at a given time;  but it won't tell you the basis of the timber that was loaded on a truck and hauled to the mill.

A timber consultant or forester involved in the sale can be a great resource.  Also need to consider the cost vs potential tax benefit.

1 hour ago, Pacun said:

March my business was shut down by the government so my income was near 0 in April 2020.  I was affected on that angle too. So even though my income was spread 

Clearly meets the rules for penalty waiver and three year reporting.

3 hours ago, Gail in Virginia said:

I wonder if that would qualify me for paying the tax over three years if I had? 

For a self-employed person there are two routes available by sec 2202 and Notice 2020-50 as reflected by the instructions to 8915-E.

First if your business was closed or your hours were reduced due to covid.  That does not appear to be your case.

Secondly if your self employment income was reduced.

Your gross income was not reduced, but did the extra cleaning cost reduce your SE income and caused you to experience adverse financial consequences?

There was no extension by either CCA-21 or ARPA-21.

2 hours ago, Pacun said:

Was she affected by covid? was I affected by covid?

Yes for your wife if she was laid off or had reduced hours due to pandemic.  Yes you experienced adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to covid; and there is no set dollar amount in sec 2202 or Notice 2020-50 that I can see.

But in the case of the original post there is a narrow gate to pass through since he was laid of before the pandemic hit, and does not meet any of the criteria of sec 2202 or Notice 2020-50 in his inability to find a new job.

13 minutes ago, Pacun said:

Who said this is not crazy?

Agree, a lot of crazy and unfair stuff, but I don't get to decide tax benefits based on that.

4 hours ago, Pacun said:

$60 for W7, but DC government had shut down none-essential businesses. So the client went to MD where tax preparers were essential and I lost that income.

You might have a case that you lost some self-employment income, which is a factor stated in sect. 2202, but can you consider $60 an adverse financial consequence?

2 hours ago, Randall said:

But I wouldn't give him the 3rd degree trying to disqualify the person.

I wouldn't either, but after exhausting any possible tax benefit allowable by the law I would have so say sorry you don't qualify.

3 hours ago, Pacun said:

the regulations read that, no penalty and you can pay taxes in 2020, 2021, and/or 2022.

The IRS has not posted any "regulations".  The authority comes from the Cares Act and the IRS notice referred to above.  The penalty exception and "three year rule" are allowed in specific cases only.  Unfortunately, there is no exception for an individual laid off prior to the pandemic and who could not find new employment because jobs were not available. 

However, he could qualify if was unable to work because of quarantine, unable to find child care, a job offer rescinded or start date for a job delayed due to COVID-19.

If you have read a source that says differently please post it here.

On 3/13/2021 at 7:25 PM, Pacun said:

If he is was 55 last year, then he doesn't have to pay penalty because he separated from service.

Bingo!

11 hours ago, peggysioux5 said:

discretion of trustee.

A discretionary trust can give the trustee complete authority to decide who gets distributions and how much.  Also whether to pay out of income or corpus.

11 hours ago, peggysioux5 said:

  If the trust is set up at 50% per beneficiary,

What does the 50% refer to? 

On 3/5/2021 at 5:59 PM, Pacun said:

getting a new job was hard. Only few employers were hiring... a lot of them were laying off people and more people were on the market looking for a job.

but none of those reasons meet the criteria of Section 2202(a)(4)(A)(ii) of the CARES Act or notice Notice 2020-50 in determining that the taxpayer was unbale to find employment due to pandemic. 

Click on the "Distributable Income" tab on the bottom of 1041 input.

The middle column is for deductions, you enter it on the line for "ordinary loss."

43 minutes ago, DANRVAN said:

review Section 2202(a)(4)(A)(ii) of the CARES Act or notice Notice 2020-50.

Sorry, I misunderstood your post.  Was he unable to work or find work due to quarantine?

Did he have a job offer rescinded or start date for a job delayed due to COVID-19?

1 hour ago, Dave T said:

I don't see this as Covid related and they don't meet another Covid requirement so I think the penalty stands unless I am missing something.

Suggest you review Section 2202(a)(4)(A)(ii) of the CARES Act or notice Notice 2020-50.