DANRVAN

1 hour ago, BulldogTom said:

  On the other hand, the member who it was sold to may want non-recognition of their portion,

Maybe that could have been avoided if the sale had been structured differently.  However this sounds like a done deal and now your picking up the pieces in order to file the tax return.  Maybe it's not to late to remedy the situation if all the partners are on board.

21 hours ago, Pacun said:

Technically the purchasing member is increasing her interest on the partnership but buying "shares" from the other partners. The purchasing member is receiving a partial .

Why? David indicated it was an outright sale of partnership property to a "purchasing member" at what sounds like fair market value.  Maybe I am missing something, but why would that be treated a partial distribution instead of a legit sale?

David also indicated the purchasing member will remain a partner in the partnership which will continue renting other property. 

So unless there is a 704(c) issue related to contributed property, then why would you not treat is as a sale from partnership to partner and  allocated  gain 1/3 each?

If the payment is really alimony then client needs to report it as such.  Also report and back out of C to prevent the IRS letter.

  You can spend a lot of time and money trying to get ex to correct it.

6 hours ago, Terry D said:

Just to clear things up a bit. This was and is a restaurant business that both parties entered into equally in 2015 and did not get opened for business until Jan 2016. So, no years of basis increase or decrease only one year. Each party contributed 9k cash. I am fully aware of the what comprises the basis. What I don't know is who determined the stock basis was equal to the 2475 when it should have been the 9K. He has records, receipts and copies of the original agreement and the departing agreement. The K-1  

Terry it looks like you have proof of the actual basis, so why not go back and amend 2016?

In regards to the  uncollected $3,000, he can not write if off since it was a capital contribution and not a loan.

Smells like a lot of bad blood developed in the deal, were they friends to start with?

Qualified education expenses paid by a 3rd party for the dependent of a taxpayer are considered paid by the taxpayer.

Depends.  If joint and separate liability then it goes to the one who pays.  If tenants in common and not JSL then they can only deduct their share.

Terry, the information in your post is not clear to me.

-How do you know his original basis (contribution) was not reduced to $2,475 over the years?

-It appears basis of $2,475 was reduced to zero in 2016.

-In 2017 he received $6,000 for exchange of stock which now has a basis of $0...?

-I don't see how he can take a deduction for $3,000 proceeds he never received from the sale of stock  The unpaid balance was never included as taxable.  

39 minutes ago, WITAXLADY said:

I carry them in fixed assets under non depreciable until sold or placed into service so not forgotten

So do I,  I use an asset program outside of ATX.

5 hours ago, Pacun said:

 

Head of house hold for her this year with the one child she supported more than 50%. If not single with one dependent.

 

I don't believe providing more than 50% of support to a dependent is a factor in qualifying for HHH, but the taxpayer must provide over 50% of the cost of keeping up a home for the year.

Thank you for your response Pacun.   I found some case law that supports the argument for temporary absence for the boyfriend.

My big concern is to get over the hurtle of resident alien which is new to me.  Looks like "The Substantial Presence Test" will be met.

This is new one for me and would appreciate your input.

Taxpayer is in US under DACA (C33).  She has SS# and works at bank. I believe she would qualify for EIC under the Substantial Presence Test since she has been in US for over three years.

She has 2 sons, one born in the US and one born before she came here, they both have SS numbers.

Boy friend (also client) is the father and they have lived together except while he was detained by immigration for over 6 months in 2017, then went back to work.

He made $16,000 and she made $23,000.  The want to file to maximize tax benefits.

In this case, it appears she can file as HHH, claim 2 dependents, EIC,  CTC and credit for child care while he will file single.

Can anyone see if I am overlooking anything?

Thanks.

The client needs an attorney who is experienced in this matter.

Reg 1.170A-14 is a good source for the qualifications.

Also if client is a qualified farmer or rancher per sect 2032A(e)(5) he might be able to deduct up to 100% of his contribution base.

You just input the cost of sale on line 1b of Schedule F, there is nowhere to input the beginning and ending inventory. 

That sounds right.

Depends.  If there is stored wheat or calves raised by the farmer they would be a section 481(a) adjustment.  If there are calves purchased for resale he would continue to treat as inventory under the cash method.

On ‎02‎/‎13‎/‎2018 at 2:05 PM, michaelmars said:

The preparer of the partnership does not determine the  754 step up, that comes from the preparer of the 706.  It is the executor's responsibility to inform the partnership of the election amount.  Remember a 754 can go up or down and also if real estate part of the step up needs to be allocated to land.

I haven't used ATX since the 2012 issues but i recall at that time it sucked at keeping track of the step up and getting the program to just allocate that depreciation to the applicable partners.  I strongly suggest an excel spreadsheet, especially if there are multiple 754's.

In some cases, I have prepared both the 1065 and 706. In other cases there was no 706 to file.  In any case, the preparer needs to ensure that the estate is informed of the election and how it works.

In regards to the depreciation aspect,  I would never trust ATX.  I use a separate depreciation program and input back into tax program.

9 hours ago, FDNY said:

I agree.  If he stopped at main office first, the distance to the job site and back to office is deductible.

That would be true if he was required to report at office by employer or actually did some work there.

The only other way to deduct would be if he was temporarily working outside his "metro" area.

In my opinion, any tax preparer who does not understand the concept and importance of maintaining both inside and outside partnership basis should stay clear of preparing 1065's.  A missed 754 election can be costly to the client and leave the door of litigation open to the preparer.

However, there is relief.  First  automatic relief may be available under Regs. Sec. 301.9100-2. Under this regulation, a taxpayer is granted an automatic extension of 12 months.

If that time period has passed then the only recourse is to seek relief under Regs. Sec. 301.9100-3 as a PLR.  In that case, the tax payer must have reasonably relied on a qualified tax professional and the tax professional failed to make, or advise the taxpayer to make, the election.

A taxpayer will not be considered to have reasonably relied on a qualified tax professional if the taxpayer knew, or should have known, that (1) the professional was not competent to render advice on the regulatory election, or (2) the professional was not aware of all relevant facts.

The additional standard deduction for the elderly and the blind has not changed.  The House bill would have eliminated it, but the Senate amendment and Conference agreement saved it.

4 hours ago, Terry D said:

Can you give me a resource for this? I have looked in several places and don't remember seeing  the exception you speak of. Of course, I do see you are saying "If the new business interest expense limitation applies"

Look at the sect. 163(j)(7)(A).  Also,  per section  163(j)(7)(A)(ii).  an "electing real property trade or business" is not considered a "trade of business" for the interest expense limitation.  An "electing real property trade or business" is one that is described in sect. 469(c)(7)(C) as a real estate prof. and makes an irrevocable election to use ADS.  

So as with the new section 199A deduction, it looks to me that case law and sect. 469(c)(7)(C) will determine whether a real estate rental is a trade of business in regards to the business interest expense limit, unless we hear otherwise from a rev. ruling or tech. corrections.

On ‎01‎/‎17‎/‎2018 at 6:44 AM, BulldogTom said:

I did not think about that for my Sole Proprietors.   So if it is a side hustle, legitimate, but not the full time occupation of the owner, and they don't take a draw but leave the profits in the company, you think the owner will have to determine what is reasonable compensation and deduct that amount from the income of the SCH C to arrive at QBI for the deduction?

Tom
Modesto, CA

The code uses the terms "paid to" and "payment...to".  Therefore if there were no payments made, then I don't see any reasonable compensation paid in respect to 199A.

On ‎01‎/‎17‎/‎2018 at 6:44 AM, BulldogTom said:

I did not think about that for my Sole Proprietors.   So if it is a side hustle, legitimate, but not the full time occupation of the owner, and they don't take a draw but leave the profits in the company, you think the owner will have to determine what is reasonable compensation and deduct that amount from the income of the SCH C to arrive at QBI for the deduction?

Tom
Modesto, CA

I don't see how reasonable compensation could be attributed to an amount which never drawn out by the sole proprietor. Also, in regards to a partnership in which a partner never took out any guaranteed payments or draws,   I don't see where 199A (c)(4) would come into play at this point.

On ‎01‎/‎19‎/‎2018 at 7:01 AM, Patrick Michael EA said:

  When I look at the Schedule D Tax Worksheet it looks like the gain from the depreciation is taxed at ordinary income rates with a maximum rate of 25%.  Is this correct?

Thanks

No.  Actually It is an unrecaptured section 1250 gain that is taxed at a maximum "capital gains" rate of 25%.

On ‎01‎/‎16‎/‎2018 at 5:23 PM, SaraEA said:

I was at a seminar on Monday and the instructor (a JD), said he thinks rentals qualify but will withhold saying so definitively until IRS issues clarification.  There is A LOT in this law that favors real estate owners.......

In general, I don't believe real estate rentals will qualify unless the taxpayer can rise to the level of a real estate professional.  Otherwise they do not meet the trade or business requirement of section 199A.  Since "trade of business" is not further defined by TCJA or 199A, case law will prevail in definition.

On the other hand, in regards to the business interest limitation, both the TCJA and revised code 163(j) specifically refer to section 469(c)(7)(C) in defining real estate professionals who are exempt from the limitation as a trade or business.

So it appears to me that any rental activity that can clear the 469(c)(7)(C) hurdle gets the 199A deduction.

On 1/3/2018 at 9:39 AM, Abby Normal said:

Yes, and I read on Forbes that Sch Es get it too, but I haven't been able to corroborate.

The bill and code don't clearly define trade or business.  As I understand it, in the final negotiations, congress extended deduction to include rentals to gain support of the bill by a couple of hold outs (who just happened to be owners of rental property).

Per section 199A (d) (1)  In general.
The term “qualified trade or business” means any trade or business other than—