DANRVAN

Are you aware of the "substance-over-form doctrine"? Why would you not use it to your client's advantage? Looks to me like you would have a gain of about $12,000 if basis is allocated on 30,000 / 130,000 figures.

Look at the substance of the transaction. The bakery reduced taxpayers route by a few stores and compensated him $30,000. That is how I would treat it. They went through some extra hoops to get there for legal/admin purposes, but they still have the route minus a few stores + a check for $30,000.

Not knowing the facts and circumstances, I would inquire as to the business purpose in order to justify the expense. Are they holding as a reserve for drought years? Future expansion? An adjoining piece of property bought to avoid new neighbor conflicts ( encroachment of non-farmers) ? In my area there is a high demand for pasture so capitalizing idle ground is not a concern. Mowing unused pasture is unheard of and in most cases not practical due to the terrain and acres involved. I don't believe that is an accurate allocation method. The 20 acres in your example has two components; the land and the timber. You would need to know the value of both to make a reasonable allocation, that was the point of my question. To go further with this, you would also need an estimate of the standing timber volume in order to track the expenses on a board foot basis. Otherwise, how will you know how much to write off when x amount of timber is logged off and y amount is left standing? Do you see a record keeping issue here? For the ranchers with both pasture and timber, grazing is the primary purpose and the timber is incidental. I have never seen an accountant make an allocation in that situation; it is all wrote off. Getting off topic, but I have consulted with foresters to back track basis of timber sales using growth rates and historical sale prices.

If those are Schedule F expenses allowable under section 163, then why would you capitalize instead of taking the deduction to maximize the tax benefit to your client? The 266 election is for allowable expenses, so they should be deducted if that is to the advantage of your client. If this is an isolated parcel which farmer is holding strictly as an investments, then the expenses would fall under section 212 otherwise deductible as misc on Sched A, subject to TCJA. What reasonable method do you use to allocate those cost? You would have to allocate by the amount of standing board feet of timber at the end of each year, then recognize per board foot as logged.

From what I have read it is going to fall on the shoulders of the employer regardless.

While the property fell victim to TCJA for carrying charges, any expenses in 2019 related to the sale can be added to basis.

That would be the case in tax years beginning after 2017 thanks to TCJA. Prior to that, expenses that are ordinary and necessary to maintain the investment property under section 212 can be capitalized through a section 266 election. I believe that would include insurance, utilities, lawn maintenance....etc. and since it was incurred for the management, conservation or maintenance of the investment property, it is a section 212 expense eligible for the 266 election. The basics of the 266 election in this case are to capitalize expenses that would otherwise be deductible to the partners as misc on Schedule A. Since the house was not held as a rental, the legal expenses are not deductible above the line.

It is treated as investment property and covered by a sect 266 election. Since the returns for those years have never been filed, you might be in luck. Reg 1-266-1(c) states that the election has to be made with an original tax return, there is no reference that the return must be timely filed. Pub 535 also state the election must be made with an original return or if an original return has been filed, the election can be made with an amended return filed within 6 months of the due date without regards to extensions. So it appears that since your client's partnership has never filed any tax returns, those years are all open and original returns can be filed to make the election. However, you need to consider the effect of TCJA for years beginning after 2017. An election for sect 266 only covers otherwise deductible expenses. That limits the election to $10,000 of property taxes for years after 2017; and also eliminates the election for carry charges subject to the suspension of misc itemized deductions. Unless I am overlooking something, it looks like you can file a 1065 to make the 266 election for each open year and increase the basis (subject to TCJA for 2018 and 2019). $100,000 increase in basis should be well worth your fee for some basic returns to make the election per the reg and IRS pub. In situations where the election was omitted on original returns, PLRs have ruled favorably for taxpayers that were not advised of the 266 election, but that does not appear to be the case here.

Charge by the hour, but if you are working in an area that you are have limited experience, or maybe a little rusty in, then you need to make an adjustment for the amount of extra time it took.

The clock stops during the suspended period and starts again when it ends. The fact that he retired does not erase the suspended period. So if your client retired on June 30 2019 and sold the house on June 30 2020, he would look back four years from the date of his deployment in 2014 for a base period for the 2/5 year rule (assuming he meets the 50 mile rule of 121(d)(9)(C)(i)).

There are a couple ways to report the liquidation. but the answer is the same. Assume the basis was $94,000 on 12/31/16. Add to that the reported 2017 gain of $211.971= $305,951 basis before liquidation. Assume the $258,000 reported in box 16d is the liquidating distribution. Loss = 258,000 - 305,951 = (47,971). As understand it, your client owns 1\5 of the shares which were inherited. However the closing statement you mentioned seems to report only your client's share. I am curious as to who the closing statement shows as the seller?

So you will have two transactions to report: the shareholder's allocated gain from the k-1 and the capital loss that should result from the liquidation. The gain comes from an internal transaction dependent upon the adjusted basis of the building in the hands of the S-corp.

Max, it looks to me like you could be dealing with a sale of the warehouse by the S-Corp; instead of a sale of the S-Corp stock. If it was a sale of the stock, then I don't see why the final K-1 would show the sale of real estate. If it was a sale of real estate by the S-corp, then you need to compute gain or loss on the liquidation of the S-corp.

Earned income includes SE income reduced by the deduction for 1/2 of SE tax. The gain or loss from sale of business assets does not factor in.

For a married coupe, their exclusion is $312,400 since they lived in the home for 15 months (5000,000*15/24).

I have used ATX for 20 years for all types of forms: 1040, 1065, 1120, 706....without any issues. QBI and 3115 are no problem. I have no problem with input time. I use my left hand to navigate with the mouse and keep my right hand on the number key.

Not if you also show as a disposition in the same year.

The 4797 input tab will take care of it.

I started my own part time practice in 1997 using Intuit Pro Series; I hated it. Then out of the blue in fall of 2000 an ATX demo show up in the mail! I have been using it ever since. I can't remember the last time I had to call support.

I do not see any reason why the S corp partners would be treated differently than any other partner in regards to basis. The rules for tiered partnerships do not apply here since the lower tier partners are Sub S.

As cbslee stated, the assumption of the loan should be treated as a sale of the business. What type of business assets were taken over by daughter and who is responsible for the loan if daughter also bails out?

My sympathy is with you Darlene, your Faith will see you through, Dan

Terry, you need to review section 121(b)(5) which reduces the exclusion by a ratio determined by the amount of time the residence was held for nonqualified use after January 1, 2009 Note the exception under 121(b)5(C)(ii)(I) for the 5 year period beginning after the last day the property was used a personal residence. This means that the exclusion is fully allowed in the situation you described. In that situation the exclusion would be reduced by the ratio of nonqualified use. For example, tax payer owns house for ten years (purchased after January 1 2009); rents out the first 8 and then uses as residence for 2 years before selling. The exclusion is reduced by a ratio of 8/10. But in your case there is not a reduction in the exclusion since the nonqualified use began after the last day it was used as residence per 121(b)5(C)(ii)(I).

I looked at a 1041 with depreciation. It flowed to LIne 9 of the K-1 with code A for depreciation. 179 is allowed for grantor trust since the grantor and the trust are treated as the same entity for income tax purposes. If the attorney has confirmed that the trust is treated as a grantor trust for tax purposes, then section 179 should be allowed.

For a grantor irrevocable trust, I believe it depends on the language of the trust. As far as depreciation goes, it is a separately stated item on the K-1 and off the top of head don't recall how it flows with ATX. For some grantor trust there are options for filing a less than complete 1041, not on top of my head either.