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.

9 hours ago, Edsel said:

Drake assigns "unrecaptured s.1250 gain" to Schedule D and a ceiling of 25%

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%.

On 11/28/2019 at 8:59 AM, Edsel said:

For some reason the IRS left a little bit of the huge loss (some $15K) as allowed

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.

7 hours ago, DANRVAN said:

was that allowed on Schedule A or C?

Meant to say F instead of C.

On 11/28/2019 at 8:59 AM, Edsel said:

a huge farm loss disallowed as a hobby

On 11/28/2019 at 8:59 AM, Edsel said:

(some $15K) as allowed, and I don't know why as I didn't prepare the return

was that allowed on Schedule A or C?

On 11/28/2019 at 9:21 PM, Edsel said:

Unrecaptured section 1250 gain $70,000 subject to capital gains (ceiling of 25%)

It is ordinary income subject to max of 25%

5 hours ago, Elrod said:

Happy Thanksgiving to all

And Happy Thanksgiving to you Elrod, and to to everyone on the board!

5 hours ago, Elrod said:

Up early to hunt it down.....

We have a wild herd of those hanging around our barn, you are welcome to one.

4 hours ago, FDNY said:

Have a great day everyone and let's hope the balloons get to fly.  

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

45 minutes ago, Pacun said:

since the twin brother were of the same age and the dependent was not younger than his wife, then... no EAC.

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.

8 minutes ago, FDNY said:

.  I better buy a second turkey, might need at least 3 legs and thighs.

Not for me, I come from a line of cattle ranchers on both sides,  I can smell the prime rib already!

2 hours ago, jklcpa said:

Sec 35 is the section that covers SEHI, ,and subsection (e) has the list of qualified coverage

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

49 minutes ago, DANRVAN said:

It looks like they can.

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.

21 hours ago, RitaB said:

The twin brother is not younger than the spouse, so no.

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.

22 hours ago, Pacun said:

Can they claim earned income credit?

It looks like they can.

49 minutes ago, DANRVAN said:

 

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.

12 hours ago, Pacun said:

the student was the second to be 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.

2 hours ago, BulldogTom said:

the case lays out a very detailed analysis of the factors the court looks at in determining a profit motive.

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.

On 11/23/2019 at 2:13 PM, BulldogTom said:

Commissioner for a winning case from 2003.

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.

17 minutes ago, DANRVAN said:

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.

 

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

On 11/20/2019 at 8:44 AM, ETax847 said:

Should she be a Sch C?

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.

On 11/21/2019 at 5:50 AM, Dustan said:

If there was depreciation taken, you may have extra depreciation recapture in the first year.

That can be brutal if the property is fully depreciated. 

By the way, welcome to the board Dustan!

On 11/20/2019 at 9:48 AM, TaxPreparer said:

He still owns a major portion of the land

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.

22 hours ago, TaxPreparer said:

Does this still qualify to be a deffered sale?

1033 can apply in the case of involuntary conversion.  Also in cases where replacement property is purchased due to severance damage.

22 hours ago, TaxPreparer said:

How would I report the 1099-S on the tax return

I reported the sale price and related basis reduction to head off an IRS letter.

22 minutes ago, cbslee said:

 Dan says this is personal property, which I have dim memories of the TCJA limiting the use of Form 6252 to only real property. 

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

9 hours ago, Monkeyman 2 said:

a million years ago worked at ATX in Caribou Maine.

That was a great organization with with outstanding people.

  RIP William.

Thank you for the post Kerry.

On 9/5/2019 at 8:28 AM, jklcpa said:

Do the normal rules for basis in gifted property apply here when the gifted property has declined in value and that results in a loss so that the basis you start with may not be donor's cost but fair value instead?

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.