DANRVAN

Like many tax issues, it depends on the facts and circumstances. The concern is whether the income is capital or ordinary. What exactly is the client selling? if he/she is selling a future stream of income, based on present value calculations, it is ordinary income under the "substitute-for-ordinary income doctrine." The courts have applied that doctrine to the sale of rights to lottery winnings. If on the other hand, the taxpayer is selling a perpetual easement with exclusive rights to the land the tower sits on, that is the sale of a capital asset.

But notice it is taxed at ordinary rates. However, it does offset capital losses so it is a hybrid of sorts. Capital gain taxed at maximum ordinary rate of 25%.

They allowed some of the loss? Then sounds like IRS decided he was in the business of farming, but disallowed some of the deductions as not ordinary or necessary; or as unsubstantiated. Disregard my reference to Schedule A above if he was allowed to report a loss.

Meant to say F instead of C.

was that allowed on Schedule A or C?

It is ordinary income subject to max of 25%

And Happy Thanksgiving to you Elrod, and to to everyone on the board! We have a wild herd of those hanging around our barn, you are welcome to one.

And Happy Thanksgiving to you Bill. Thanks for the invite!

I am not following you Pacun. As previously posted, a sibling does not have to be younger than taxpayer's spouse per section 152(c)3(A) to be a Qualified child. Also, if twin #1 was born before midnight and #2 after midnight, then Rev. Rul. 2003-72, 2003-2 CB 346, 07/19/2003, IRC Sec(s). 21 indicates twin #2 is in fact younger than twin #1 for EIC purposes. Even if they were born before and after midnight in the same year, you can make the argument that twin #1 will always be one day older per the revenue ruling.

Judy, there are so many health insurance issues stuffed into the tax code it is easy to see how someone could get it crossed over. Not for me, I come from a line of cattle ranchers on both sides, I can smell the prime rib already!

Judy I think you have some references crossed. Section 35 pertains to HCTC while section 162(l)(1) covers SEHI.

But then you still have the question as to whether twin #2 is considered to be younger than twin #1 by the IRS. As mentioned above, they might be the same age per Rev. Rul. 2003-72, 2003-2 CB 346, 07/19/2003, IRC Sec(s). 21 If they were born before and after midnight you would have a definite answer.

Rita, at first I agreed with you but then had second thoughts. The link you referred to is not consistent with other sources. From pub 501: "Child must be younger than you or your spouse........... However, if you are married filing jointly, the child must be younger than you or your spouse but doesn't have to be younger than both of you." That is also consistent with section 152(c)3(A) and the language in the 2008 Adoption Act which set forth the age restriction. It looks like they can.

Retract that, can't be the same age, dependent has to be younger. Also it appears for EIC that if born on the same day they might be considered the same age if born on the same date: ***************************************** Rev. Rul. 2003-72, 2003-2 CB 346, 07/19/2003, IRC Sec(s). 21 Earned income credit—point of attaining given age. Headnote: For purposes of various IRC provisions, IRS concluded that child attains given age on anniversary of date that child was born.

So disregarding age of spouse vs brother, you are asking if younger twin can be Q-child of the older twin since he was born later? I think so. But how about if it was the other way around? I think there is an argument that they are the same age and therefore twin #1 is not older than twin #2, but I don't have anything to back it up, just off the top of my head.

I agree with that, the court analyzed both the favorable and unfavorable factors in reaching a decision on the profit motive as it has in other cases. However, somewhere in the past I recall this case referred to as a model for beating the IRS, which it is not. While there were some other favorable factors (and some unfavorable, like less than desirable records and lack of a separate bank account) the pivotal factor in the case was the abandonment of the activity.

One of the key factors in that case was that the taxpayer abandoned the activity because it was not profitable, the tax courts have a history of recognizing that as a factor in determining whether or not the taxpayer was engaged in an activity for profit. That was also a factor in Engdahl (retired doctor raising and showing horses), Canale (motorcycle racing) and Morrissey (bank exec, weekend drag racing). Morrissey actually argued his own case and won. So in order to use these as model cases, the taxpayer needs to quit the activity due to lack of profit.

Those are the black and white cases with a lot of gray in between.

That depends on the facts and circumstances. Tax courts usually do not rule in favor of losses wrote off from activities that involve sporting or competitions. Some factors to consider are how much time she spends at the activity, how much money has she made or lost, and what are her other sources of income. If she is devoting 40 hours a week at it while living in a cardboard box and flipping burgers part time to get by until her ship comes in, then she might have a case. If on the other hand she has a six figure salary and does the dancing in her spare time then most likely it is a hobby.

That can be brutal if the property is fully depreciated. By the way, welcome to the board Dustan!

Here are some references you might want to look at: rev rul 72-255 rev rul 70-510 Inja Land Co... Gilbertz...

As others have posted it depends on the facts and circumstances. First you have to determine if it is actually an easement not subject to terms of reversion. An easement is considered a sale if grantor basically ends up without any rights to use the property. On the other hand, if the easement has minimal effect on the landowners use of the land, it is considered a return of capital and reduces basis. But here is the catch. In most situations, the reduction in basis only applies to the portion of the land which includes the easement. So if the easement covers one acre out of 100 acres, only the basis of one acre is reduced. Therefore the amount of payment that exceeds the basis of the land specific to the easement is gain. There are a few court cases where basis reduction was applied beyond the property that was directly effected by the easement. 1033 can apply in the case of involuntary conversion. Also in cases where replacement property is purchased due to severance damage. I reported the sale price and related basis reduction to head off an IRS letter.

Are you thinking 1031's of personal property no longer allowed?

That was a great organization with with outstanding people. RIP William. Thank you for the post Kerry.

That is correct Judy. Section 1015 applies so basis for gain and basis for loss must be tracked separately. That task can be made simple with a spreadsheet.