Art

Jainen Thanks for your reply. I may be looking at this all wrong but I am still concerned about treating this as a single transaction to be reported on the 8824. Here are the specific facts: Oray will transfer title to approx 120 acres of timber & hill ground with FMV of $ 240,000 (cost basis of $ 50,000) and the personal residence with FMV of $ 130,000 (cost basis of $40,000) in exchange for Ardel’s 40+ acres of prime farm ground with FMV of $ 185,000 (cost basis of $ 60,000) plus the $ 30,000 cash payment from Ardel. There are no mortgages or encumbrances on any of the properties. When I work this through on the 8824 I find that Oray will have a recognized gain of $ 90,000 on line 14 Part III for his residence. Flowing down to line 19 he would normally have a realized gain of $ 165,000 ($ 30,000 cash + $ 185,000 FMV of Ardel’s parcel less Oray’s basis of $ 50,000). Under the Sec 121 exclusion and the instructions on page 3 of the 8824 it would appear that he can only exclude $ 90,000 (FMV 130,000 less $ 40,000) and the remainder of $ 30,000 would be taxable to him. Correct? Ardel should be OK IF we are successful in treating the residence as investment property to him. His intention is to fix up the house and rent it to his granddaughter for a year or so and then she would purchase it at the supposed FMV at that time. I am concerned that we may not prevail if the IRS would examine the transaction. The result may be $ 130,000 of taxable gain to Ardel. Alternatively, we could use the gifting approach you mentioned with a slight twist as follows: 1. Have Oray sell approx 23% interest in the home to Ardel for the $ 30,000 2. Have Oray gift the remaining 77% interest in the home to Ardel 3. Have Oray gift approx 23% interest in his farm parcel to Ardel. 4. Transfer the remaining portion of Oray’s parcel to Ardel in exchange for Ardel’s parcel. At that time these should be =FMV. I assume all of these steps could be included in a single legal document, but perhaps it may be better to separate them. This would avoid all income taxes. Oray would have to use about $ 155,000 of his gift/lifetime exclusion. What specific problems do you see with this approach? Thanks for you time & input

For a 1031 exchange is it always required that the properties exchanged be of equal FMV? Ie cash or “other property” would need to given (received) if the “qualified properties” are not of equal value? Can the 1031 exchange still go through? Would the difference be considered a gift? Bargain sale? Or do the above only apply if related parties are involved? I raise these questions because I am dealing with a proposed exchange of farm parcels between related parties where one of the party’s personal residence is located on the farm parcel his is wanting to exchange. My understanding is that the personal residence is not qualifying property. Correct? The FMV of the farm parcel and residence is much larger than the FMV of the other farm parcel. Could the exchange still be reported on Form 8824? And a gift tax return filed for the excess value given up? Alternatively, could (should) gift tax return be filed first for the difference in FMV and then proceed with the 1031 exchange?

My wife's HP may need to be replaced. She has been using xp home edition, but apparantely it is no longer available. Has anyone had experience with VISTA? I use xp professional on my PC and we have them on a wired router using cable modem for internet. Any probem with VISTA on her machine & XP on mine? I just hate having to change computers & I am concerned with any new operating system until it has been around for awhile. Thanks for you input.

Oops! My bad. I forgot that the exepmtion amount is scheduled to revert to the 2000 yr level unless new legislation is passed. Still the computation of AMT on line 31 of Part II says "If line 30 is <$175,000 ($87,500 MFS), multiply line 30 by 26% Otherwise, multiply by 28%, and subtract $3,500 ($1750 MFS). The amount on line 30 is $ 355,314. The program is calculating $ 54,837 for line 31 for AMT. I don't follow. What am I missing?

I was doing a 2008 tax projection for a new client (AGI $ 355,314 with LTCG of $ 300,000 MFJ) and I noticed that the AMT tax calcuation did not appear to work properly. Specifically the exemption amount for Part II line 29 was returning a zero value. The worksheet for line 29 exemption amount was showing a value of $ 45,000 which I am questioning. The value for 2007 was $ 66,250. Has anyone else noticed this? or I am in error here? I would appreciate feedback from others on this forum. Thanks.

Thanks for all the great posts. Good food for thought. I will be meeting with the client soon and getting further details.

How much acreage can a taxpayer include as part of his “residence” for sale of personal residence exclusion? Taxpayer has an active farm on 80 acres raising grain & hay. He & his wife originally built their house on a few acres that his wife inherited from her father over 25 years ago. Shortly thereafter he purchased the remaining contingent acreage from an unrelated party to start his farming operations. Like many farmers he has worked a regular job (construction) for many years in order to help support his growing family. The farm has generally contributed a significant portion of the total family income. After 25 years of farming he plans on selling both the house and the farm through an auction. He is considering whether he should “package” the house and a portion of the surrounding acreage in a separate parcel from the rest of the farm acreage or sell everything as a single parcel. Any acreage that he could include as part of the residence would of course save on the capital gains tax he would incur on the farm land sale. Local restrictions on farm land parcels require a minimum of 20 acres per residence to discourage subdividing and housing development of farm land. Would such a restriction be a controlling factor in the taxpayer’s favor to allow at least a minimum of 20 acres to be included as part of his residence? Could he make a case for a large portion of the acreage as part of his residence? Any other suggestions?

KC Any further updates on the ATX front? I take it that you are going to renew with them for next year. I have looked at Drake, but the data entry method really doesn't appeal to me. Taxslayer Pro & Intellitax are OK, but are not really complete packages. We all respect your opinions and value your input. Thanks, Art

What payroll reporting software are you using (or were using) when you used Drake? I need to do 941, W-2, ect. I am looking at Intellitax, but they don't do any payroll forms. ATX pricing is very high for just the payroll forms. Anyone find something they really like?