taxdan

I will check into that. Thank you!

I'm still not sure if I should use the 982 to address the 1099C income as insolvency doesn't apply for this client. It is also not qualified principal residence indebtedness as he has refi'd and pulled money out over the years.

I appreciate all the help!

Dan

Thank you for those links. Even though the letter is being challenged, I have to currently go with 1099C income due to short sale as not taxed as cancellation of debt, but as realized gain on the principal residence subject to Section 121 exclusion.

I plan to report the sale on Sch D, but any idea as how to handle reporting the 1099C income on the tax return?

I have a client who received a 1099C for the cancellation of debt from the short sale of his principal residence in CA. This debt was not acquisition debt, therefore I believe it was recourse debt. (Refi'd and money pulled out over the years) The client is not filing bankruptcy and does not qualify for the insolvency rules. Is all of this 1099C income taxable to the client?

If it was a non-judicial foreclosure instead of a short sale, would that have made it nonrecourse debt and therefore not taxable?

And finally, if it was nonrecourse debt due to being a non-judicial foreclosure, would I use the 982? I don't see any of the provisions on the 982 that would apply.

Thanks for any input.

Dan

Tom, thanks for the reminder on the refi vs original purchase. I thought of that after I typed my question out.

Jainen, thanks for the correction on when it expires. I knew that and was just thinking ahead to 2014 since that is when this may all happen for the client, not 2013 like I typed. That's also a good point about unpaid accrued interest showing up on a 1099C if the lender chooses to do so and about the possible capital gains. I'm not worried about capital gains in this instance though.

I guess I just assumed the client would receive a 1099C even if the mortgage was the from the original purchase and not a refi. If that were to happen, I suppose I could just correct it on the tax return.

Thanks again for the responses. I do appreciate it!

Client will short sale their principal residence in CA and will probably receive a 1099C for 2013. They are not insolvent or filing for bankruptcy. Even though the Mortgage Forgiveness Act expired for 2013, am I correct that the forgiveness will not be taxable since the mortgage loan was a non-recourse loan as most are in California? Thanks for the input!

Dan

I would just like to make sure I'm doing this correctly as it generates quite a huge loss for the client.

They purchased a prin residence in Oct 2008 for $825K. They moved and converted the property to a rental in March 2011. At this time the FMV was $751K.

The home was sold in May 2012 for $646K.

All values were broken down between land and building for depreciation purposes and there were some PAL carried forward to 2012.

Since this is a complete dispostion of a passive activity, they have a rather large deductible loss...no NOL as they have enough wage income to offset. I used FMV at time of converting the property to rental plus the usual expenses of sale as the basis...less depreciation of course.

Does this sound correct? I'm not sure if I did this right since it was first a prin residence.

Thanks so much for the input!

Dan

It's funny John, I actually did ask him if he planned on buying a new vehicle soon!....after I stared at my computer for awhile realizing the mistake I had made in not choosing the standard deduction orginally.

I know I couldn't just switch to the standard method, but I was hoping there was a way to amend the original. The reason I took the actual up front is because he bought a new car with a nice depreciation deduction. But he drives so many darn miles for work, the standard would have been better in the long run. I just need to think about it a bit more in the future when I make that decision.

Thanks for the input everyone!

I used the actual vehicle expense method for a client in 2010 and now realize that the standard method would have saved him a lot more money going forward. Did I read Pub 463 correctly that I can NOT amend that return to use the standard rate? It reads "You must make the choice to use the standard mileage rate by the due date (including extensions) of your return." I'm so upset at the amount of money the client will lose because of me.

Thanks for the input.

Dan

I must agree that I do learn an awful lot on this board. Thank you all for your input and a thorough answer to my original question!

I apologize for my confusion, but do I have this correct....

Because CA is a CP state, I have the OPTION to file ONE Sch E even though the husband and wife formed an llc together? The llc could be a disregarded entity in this case due to CP rules? Even though filing a 1065 may be the safer route to take.

I do NOT have the option of filing TWO Sch E's due to Rev Proc 2002-69 mentioned above?

But Jainen, doesn't having formed the husband and wife llc negate the choice to file two separate E's as per your link?...

A business owned and operated by the spouses through a limited liability company does not qualify for the election

Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity) qualify for the election. See Rev. Proc. 2002-69, 2002-2 C.B. 831, for special rules applicable to husband and wife state law entities in community property states.

That was a very helpful link Jainen and made the decision clear cut. Thank you.

Thank you all for the input. I think the very last thing Jack stated makes me want to file the 1065 instead of just the sch E. That is the very reason they formed the llc and I will explain that to them. Also, as stated, more fees to me.

Thank you all again!

New clients...husband and wife decided to move 3 rental properties into an llc. No other income involved with the llc and they are not r/e professionals.

Should I file a 1065 and 568 (LLC in CA)? Does this qualify as a "Qualifed Joint Venture" with the option to file just sch E? Is the income subject to s/e tax even though it's rental income?

Thanks for any help.

Dan

Thanks so much for the input Jainen.

If someone with your depth of knowledge is leery of e-filing a MFS return in a community property state, then I think I will choose the paper filing route also.

Luckily, this will be a one time thing for this client. They will be divorced this year and not have to deal with one another...at least tax wise.

I am still trying to convince them to file MFJ one last time as they would lose child care credit and education credit.

Question....if both spouses file an extension as MFS, are those extensions still valid if they then choose to file file MFJ?

Thank you again!

Jainen, do you normally efile these type of returns and just keep the spreadsheet for your records?

Also, how do you handle the adjustment for the Federal withholding from the W-2s since half of each spouse's withholding goes on each return?

Can someone please instruct me on how to enter W-2 info into tax software when doing a MFS return in a community property state (CA)? How do I show 1/2 of the earnings and 1/2 of the withholding on the separate return? Do I simply enter 1/2 of the information from the W-2?...or back out the extra 1/2 elsewhere on the return?

Pub 555 doesn't seem to help on HOW to enter the W-2 information...just that 1/2 gets reported on each return.

I do know about the community property worksheet in the efiling section.

Any help is greatly appreciated.

Dan

JRS, thanks for the info.

When this happened to me earlier today, I clicked the "add the file to scan exclusion list", but it didn't work. Then I clicked the "report the file as a false positive" link to report it to Avast...which didn't immediatly help me. That is when I simply disabled the File System Shield in the Avast software temporarily and it worked. You should not have to uninstall Avast unless you want to permanently get rid of it.

To be more clear...when I wrote go into the software, I meant the anitvirus software.

Dave, just go into the software, click on "File System Shield", then click on "Expert Settings" and uncheck the boxes. You should be able to login then. Just go back into the expert settings and recheck the boxes afterward.

I have Avast Pro, so I don't know if it is the same as Avast.

Good luck.

The software is not free, but thanks for the insight. It was quite helpful. And congratulation on Computer Associates. You seem quite proud of it...as you should be.

I got a response from tech support...

Avast believes the latest update for ATX is viral in nature, and is eating a few particular files. Setting up exceptions in Avast to ignore the ATX2011 folder and C:\Program Files (x86)\Common Files\CCHSFS\2011\MX11.OCX and then downloaded and running the update again should resolve this.

My antivirus software (Avast Pro) suddenly decided to block my ATX program from opening because it was viewed as a "threat". I temporarity turned off my antivirus software and it opened just fine.

I was just wondering if anyone else had experienced that.

Part of the message I got was...

Object: C:\Program Files(x86)\Common Files\CCHSFS\2011\MX11.OCX

Infection: Win32:Evo-gen[susp]

Thanks!

Dan

Thank you for the response. That's what I figured.

It still shocks me that even if you're an "active participant" for only a day, you can't make a deductible contribution.

Just to make sure I'm correct on this...

Even if a person was employed for only a couple weeks at the beginning of the year before switching jobs and that person was an "active participant" in the previous employer's retirement plan (as marked on the W-2) and not at the new employer for the remaining 11 1/2 months of the year, that person can NOT make a deductible contribution to an IRA. (Total agi over the limit)

Is that correct?