GraceNY

Owner died in July 2009. House was appraised in August 2009 for $200,000 (have copy of actual appraisal done by reputable appraisal firm). House was sold in October 2009 for $170,000 ("contract sales price" per HUD-1). Lower price 'cuz seller was looking for a quick sale. 1099-S to my client shows the $170,000 in box 2 as the gross proceeds. (1) Comments on using "appraised value" OR "sales price" as beginning basis? (2) The HUD-1 shows settlement charges to the seller in the amount of $1,500 which I know I can add to the basis, however, I am not clear on "seller's concession" for $8,500 which also appears on HUD-1 and reduces the amount due the seller. The $8,500 is a reduction or an addition to basis or has no bearing on basis? Thank you in advance for your input. Grace

Yes, the expenses for the mixed use property were deducted in the correct order. I reviewed each year and the depreciation was used last to zero out the rental income. So, is this depreciation recaptured at time of sale in spite of loss? Grace

Taxpayer purchased vacation home in June 2005. Rented it out in 2006, 2007 and part of 2008. The circumstances as such in those years resulted in limiting the deductible expenses to the rental income (under the "vacation home" rules) with excess deductions being carried over. Taxpayer made the vacation home their "primary" residence in Septemeber of 2008. (Living in it from 9-1-08 to the present with no rental). Taxpayer may be selling vacation home soon for a loss. I KNOW PERSONAL LOSSES ARE NOT DEDUCTIBLE. What about recapturing depreciation taken in 2006, 2007 and 2008 (about $3,000 total)? Taxed as ordinary income in the year of sale? And, the carried over (unclaimed) deductions...they are lost, right? Thanks in advance for your input... Grace

My question relates to the following: 36©(3) Purchase (A) IN GENERAL -- The term "purchase" means any acquisition, but only if - (i) the property is not acquired from a person related to the person acquiring such property, and (ii) the basis of the property in the hands of the person acquiring such property is not determined -- (I) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or (II) under section 1014(a) (relating to property acquired from a decedent). How do you interpret this provision? (1) Purchases from related parties do not qualify as purchases eligible for the tax credit if either of the basis provisions in § 36©(3)(A)(ii) applies, but could qualify if purchased from a related party at full FMV. (2) Any purchase from a related party is unqualified and that any purchase, even if not from a related party, is unqualified if either of the basis provisions applies. The instructions for F-5405, which is used to claim the FTHC, advise taxpayers, "You cannot claim the credit if .... 7. You acquired your home by gift or inheritance. 8. You acquired your home from a related person." Considering the above referenced §36©(3), please comment on the following: TP & Spouse are first-time homebuyers. They are purchasing a house that is owned 50% by "Jim, John & Joe" and 50% by Aunt, Jane. One of the sellers, Jim, is TP's brother-in-law ("Jim" is married to TP's sister). This does NOT fall under the "related-person" restriction as "related party" definition in this provision does NOT include in-laws...only spouse, ancestors or lineal descendants. However, as part of the purchase agreement and in agreement with the bank, "Jim, John & Joe" along with Aunt, Jane" are utilizing what is called a "gift of equity" so that the TP does not have to come up with a down payment. This strategy was not devised by the parties themselves, but rather by an attorney. Would you say that the "gift of equity" disallows the FTHC? My understanding of the sale is that the gross sales price is $155,000, the GOE is $15,000 and therefore the amount due the seller would be $140,000. Would the basis of the purchased home in the hands of the TP & Spouse be governed by Regulation Section 1.1015-4(a) which has to do with transfers in part a gift and in part a sale? Then if the TP takes the seller's basis in the property, there would be a problem. I don't see how this GOE would invalidate the FTHC unless both of the following exist: (A) The amount realized by the seller is less than the FMV of the property AND ( the net amount paid by the buyer is less than the seller's basis. Therefore, the buyer's basis would be the amount paid for the property and satisfy the "purchase" requirement of Sec 36. In my reading and research, I've also seen discussion of "sellers downpayment assistsance, "sellers closing cost assistance" and even the so-called "seller concessions" (which are very common today considering the R/E market) wherein some say that "any of the aformentioned will disqualify the transaction for purposes of the FTHC", but without any authoritative cites. Others have commented that "any gifts from the seller will invalidate the purchase for the purposes of the credit." Your input/perspective would be greatly appreciated. Grace

I don't think they will change the tax table/rates. I think they will have a line in the payments section of the 2009 tax return to take the credit ($400/$800). Here's a couple of situations that I foresee as problematic thus far: (1) W-2 wage earner and collects Social Security. Gets the lower withholdings from 4-1 through 12-31-09, but ALSO gets the $250 lump sum payment from Social Security. My understanding is that individual only gets $400 maximum. How will they repay the $250? (2) W-2 wage earner has two jobs. Day job pays $50,000 and Night job pays $28,000. Both jobs will be using lower withholding tables. When it's time to settle up on 2009 return, you've got a taxpayer who earned $78,000. That's $3,000 over income threshold of $75,000 the $400 is based on. And, this could be worse if the total income from both jobs results in a $0 credit. I am discussing this with my tax clients when I deliver the return. I'm especially conscious about the client's who generally have a balance due or only a small refund. In some cases, I am recommending that they file a new W-4 and request an additional $ amount be withheld. Many are lamenting that there's no one time lump sum check like the last go around. It will definetely be an interesting 2009 filing season. I am so NOT looking forward to it. Just be glad we won't have to ask them how much extra they got in their paychecks in order to determine how much, if any, the credit will be. They couldn't even remember how much they got in the one-time lump sum stimulus checks in 2008! Grace

Descedent = NYS Resident. Thus, a NYS Resident Estate. The Estate was not required to file F-706, but was required to file a NYS Estate return. The estate paid $25,000 to NYS. One of the assets was an IRA for $50,000 payble to estate. I'm aware of the deduction for taxes paid on IRD at the federal level (albeit, not applicable here), but was wondering about a deduction for State death taxes paid on IRD? Since I have a non-resident beneficiary, I am completing Fiduciary Allocation form IT-205-A. Besides the IRA, the estate had savings bank interest and mutual fund dividend income. On page 2 of this form (Sch 4), I am reporting all the federal income as reported on 1041 in column a. Am I correct in my understanding that since this is a NYS Resident Estate, all of this income would also be reported in column b as it would be considered NYS source income? The reason I ask is that in reviewing the instructions for form IT-205-A, I read "Lines 14 and 15 (Interest and Dividends) report in column b income from interest and dividends that is income form a trade or business carried on in NYS." and I am second guessing myself. Thank you in advance for any responses.

In the past I have either contacted the company myself or had the taxpayer get the info for me. You need to find out who the custodian is. I have a client who has this happen every year with 401(k). I know Box 7 is a code 8. If all else fails, have to file as paper return. Grace

Husband and Wife filing MFJ. Wife died on March 2, 2007. Husband did not get court appointment until September 2007 so some of the accounts in her name alone were not established under Estate Tax ID until January 2008 and others are still under her SSN. What is the correct/proper way to handle the F-1040 and F-1041? Report all the interest, dividends and capital gains earned under her SSN on the 2007 MFJ return despite the fact that a large percentage of it was paid/earned after DOD (we're talking about $15,000 - $20,000)...all assets are going to Husband once estate is settled OR split out the after DOD interest, dividends, and capital gains and report on the F-1041? My past expereince was only with a single individuals death and the filing of final F-1040 and a F-1041 when beneficiaries were the children and they were relatively neat and simple because Estate account was established fairly quickly and very few items needed to be allocated. Thank you in advance for all those who respond... Grace

Taxpayer started business in 2004. Some start-up costs were incurred prior to 10/22/04 and an election was made to amortize those costs over 60 months. No depreciable property, just a fee paid to company to become direct seller and materials purchased to train to be a seller of the product...$2,000. In 2007 taxpayer decides they no longer want to pursue buisness, made $0. What happens to the balance of those start-up costs being amortized? If they are written off on the 2007 return, how does one answer the SCH C question "materially participated in buisness in 2007?" (taxpayer didn't and that's why $0 income). Does that make it a passive loss? Thanks in advance for replies Grace

Taxpayer was granted stock options by her employer while he was living and working in NYS. Taxpayer is now a resident of Texas (moved there permanently in 2005). Exercised and sold those stock options in 2007. From my reading, it looks like he has to report the income as a non-resident of NYS (Form IT-203)? Those options were "derived from NY sources." If he had only exercised and NOT sold the options, then only the income from the exercise would be NYS source income reportable on the IT-203, not the later capital gain? Am I correct in my understanding? Thank you in advance for all those who reply... Grace