9th Annual Tax Thread - 2011

[KK]

I'm not contesting that the income has to be reported, I'm merely disputing that he has multiple options. Assuming he's not a real estate professional, it would go on Schedule E. Since he's mostly likely selecting tenants and settings terms and what not, he's actively participating (differently from materially participating). This would enable him to deduct up to $25,000 in losses each year assuming his MAGI is below $150,000. Otherwise, these losses will accumulate on Form 8582 til he has either passive income or disposes of the property.

Not a real estate professional, unless that will benefit me. The wife knew the lady that moved into the house, whats the actively participating vs. materially participating. It is understood that the tenant will take care of the little things, and anything major, I'm sure we would be notified. In this roll can a claim a loss? If not, if say I go over there a few times and spray for bugs, would that change the claiming a loss ability.

 

[EagleKeeper]

From IRS Pub 925

Passive Activities

There are two kinds of passive activities.

Trade or business activities in which you do not materially participate during the year.

Rental activities, even if you do materially participate in them, unless you are a real estate professional.

Material participation in a trade or business is discussed later, under Activities That Are Not Passive Activities.

Treatment of former passive activities. A former passive activity is an activity that was a passive activity in any earlier tax year, but is not a passive activity in the current tax year. You can deduct a prior year's unallowed loss from the activity up to the amount of your current year net income from the activity. Treat any remaining prior year unallowed loss like you treat any other passive loss.
In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. The allocable part of your current year tax liability is that part of this year's tax liability that is allocable to the current year net income from the former passive activity. You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero).

Rental Activities

A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional. See Real Estate Professional under Activities That Are Not Passive Activities, later. An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers, and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. It does not matter whether the use is under a lease, a service contract, or some other arrangement.

Special $25,000 allowance. If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.
If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income.
The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. See Phaseout rule, later.

The loss is automatic unless you meet one of the exceptions mentioned in the Pub 925

Exceptions. Your activity is not a rental activity if any of the following apply.

• The average period of customer use of the property is 7 days or less. You figure the average period of customer use by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by a fraction. The numerator of the fraction is the gross rental income from that class of property and the denominator is the activity's total gross rental income. The activity's average period of customer use will equal the sum of the amounts for each class.
  
• The average period of customer use of the property, as figured in (1) above, is 30 days or less and you provide significant personal services with the rentals. Significant personal services include only services performed by individuals. To determine if personal services are significant, all relevant facts and circumstances are taken into consideration, including the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property. Significant personal services do not include the following.
  
  
  • Services needed to permit the lawful use of the property,
    
  • Services to repair or improve property that would extend its useful life for a period substantially longer than the average rental, and
    
  • Services that are similar to those commonly provided with long-term rentals of real estate, such as cleaning and maintenance of common areas or routine repairs.
    
  • You provide extraordinary personal services in making the rental property available for customer use. Services are extraordinary personal services if they are performed by individuals and the customers' use of the property is incidental to their receipt of the services.
• The rental is incidental to a nonrental activity. The rental of property is incidental to an activity of holding property for investment if the main purpose of holding the property is to realize a gain from its appreciation and the gross rental income from the property is less than 2% of the smaller of the property's unadjusted basis or fair market value. The unadjusted basis of property is its cost not reduced by depreciation or any other basis adjustment. The rental of property is incidental to a trade or business activity if all of the following apply.
  
• You own an interest in the trade or business activity during the year.
  
• The rental property was used mainly in that trade or business activity during the current year, or during at least 2 of the 5 preceding tax years.
  
• Your gross rental income from the property is less than 2% of the smaller of its unadjusted basis or fair market value. Lodging provided to an employee or the employee's spouse or dependents is incidental to the activity or activities in which the employee performs services if the lodging is furnished for the employer's convenience.
  
• You customarily make the rental property available during defined business hours for nonexclusive use by various customers.
  
• You provide the property for use in a nonrental activity in your capacity as an owner of an interest in the partnership, S corporation, or joint venture conducting that activity.

Based on your story, you are clear with no additional effort required.

 

[RavenSEAL]

Serious question, me and my parents are full of bewilderment right now.

I am a college student earning about 11,000-12k/year as what my school defines a "Student Assistant". I have a w-4, pay taxes bi-weekly, have no benefits and all my school stuff is on loans and grants up to 22K/year as of right now. This year, I've only earned about 6K (started my job in July).

It would obviously be nice to get a good tax refund is possible, i'll be having to buy a new car SOON as mine is about dead; it would be nice if it was a nice car (8-9K used) + Insurance. Also top that with books, meal plan, etc.

Question is, do I file with my parents who make a bout 80K year combined and take away whatever tax refund(if any) or increase their tax payment as a dependent? or, can I file by myself and [would i?] get a tax refund?

Any help is appreciated guys, hopefully this clear things up before I got talk to one of em fancy tax advisors to make sure everything is legally right.

 

[theeedude]

Is it too late to pay estimated tax? Got about 50K in long term cap gains in the summer. Never bothered with 1040es, I remember I got dinged a couple hundred bucks last year. Is my penalty basically going to be 50,000*15% LT rate*3% interest =$225? If I send $7500 to IRS now, will I avoid the penalty or I will still be dinged for it because I didn't send it in in the summer?

 

[EagleKeeper]

Is it too late to pay estimated tax? Got about 50K in long term cap gains in the summer. Never bothered with 1040es, I remember I got dinged a couple hundred bucks last year. Is my penalty basically going to be 50,000*15% LT rate*3% interest =$225? If I send $7500 to IRS now, will I avoid the penalty or I will still be dinged for it because I didn't send it in in the summer?

As long as the funds are sent by 31 Dec, you should be safe for 2011.

Earned income is what the IRS looks for in quarterly payments.

 

[EagleKeeper]

Serious question, me and my parents are full of bewilderment right now.

I am a college student earning about 11,000-12k/year as what my school defines a "Student Assistant". I have a w-4, pay taxes bi-weekly, have no benefits and all my school stuff is on loans and grants up to 22K/year as of right now. This year, I've only earned about 6K (started my job in July).

It would obviously be nice to get a good tax refund is possible, i'll be having to buy a new car SOON as mine is about dead; it would be nice if it was a nice car (8-9K used) + Insurance. Also top that with books, meal plan, etc.

Question is, do I file with my parents who make a bout 80K year combined and take away whatever tax refund(if any) or increase their tax payment as a dependent? or, can I file by myself and [would i?] get a tax refund?

Any help is appreciated guys, hopefully this clear things up before I got talk to one of em fancy tax advisors to make sure everything is legally right.

You will have to file a return. If your W4 income is over $5700; you can not file as a dependent but as single.

Under the $5700 level; experiment to see which is best for the family unit.

 

[DJ-phYre]

I have a question regarding the sale of stock. As this is my first time selling, and I wasn't sure how it would work under the circumstances of a Employee Stock Purchase Program (ESPP).

With the ESPP at my company we get 15% less the LOWEST value on Jan 1 or Jun 30 (first offering) and the same for Jul 1 and Dec 31.

When calculating capital gains, would I use the value of the stock at the time of purchase?

i.e. If stock was $30 on Jan 1 and $38 on Jun 30, I would get to purchase the stock for $30/share less 15% (25.50/share).

This is where it becomes fuzzy for me. I believe taxation on capital gains uses the following rules:

i. If the stock is held for a minimum of 2 years I will be taxed on the lesser of my actual gain or 15% FMV of the stock on the grant date.

My understanding -- I will not have to pay tax on the 15% discount that I received. My capital gains will be calculated based on the price of the stock at the time it was granted or $30/share in the above example. Is this correct?

 

[CPA]

I have a question regarding the sale of stock. As this is my first time selling, and I wasn't sure how it would work under the circumstances of a Employee Stock Purchase Program (ESPP).

With the ESPP at my company we get 15% less the LOWEST value on Jan 1 or Jun 30 (first offering) and the same for Jul 1 and Dec 31.

When calculating capital gains, would I use the value of the stock at the time of purchase?

i.e. If stock was $30 on Jan 1 and $38 on Jun 30, I would get to purchase the stock for $30/share less 15% (25.50/share).

This is where it becomes fuzzy for me. I believe taxation on capital gains uses the following rules:

i. If the stock is held for a minimum of 2 years I will be taxed on the lesser of my actual gain or 15% FMV of the stock on the grant date.

My understanding -- I will not have to pay tax on the 15% discount that I received. My capital gains will be calculated based on the price of the stock at the time it was granted or $30/share in the above example. Is this correct?

In your case above, it sounds like you sold 2 years after the Grant Date, which would give you a Qualifying Disposition. You will have to report compensation income. However, it's a bit tricky. It's the smaller of:

- the fair market value of the stock at grant date and the purchase price as of the grant date OR

- profit from selling the shares.

Your employer may or may not include the compensation income on your W2. Your employer should send you a form 3922, which will help you file properly. Assuming you sold the shares, you will receive a 1099-B showing the proceeds of the sale.

Use Schedule D to report the sale of your shares. Don't forget your basis in the stock will be what you paid PLUS the compensation income you calculated.

Go about 2/3rds ways down to get a good example.

 

[DJ-phYre]

In your case above, it sounds like you sold 2 years after the Grant Date, which would give you a Qualifying Disposition. You will have to report compensation income. However, it's a bit tricky. It's the smaller of:

- the fair market value of the stock at grant date and the purchase price as of the grant date OR

- profit from selling the shares.

Your employer may or may not include the compensation income on your W2. Your employer should send you a form 3922, which will help you file properly. Assuming you sold the shares, you will receive a 1099-B showing the proceeds of the sale.

Use Schedule D to report the sale of your shares. Don't forget your basis in the stock will be what you paid PLUS the compensation income you calculated.

Go about 2/3rds ways down to get a good example.

The money is post-tax off my paycheck. 1099-B will actually come from E Trade as they manage the plan. I was just curious exactly how to handle it. Once I get everything in I will come back to this thread.

It may be the first time I actually consult with a CPA for filing as well.

 

[mwtgg]

As long as the funds are sent by 31 Dec, you should be safe for 2011.

Earned income is what the IRS looks for in quarterly payments.

That's not necessarily true. If he's based, he won't owe penalty. If he's not based, then paying in now (aka before Jan 15) will be better than paying in whenever he files.

The IRS basically takes your total tax and divides it in four to find required quarterly payments. It then takes your total withholding and any quarterly payments and sees if there's a shortage or overage for each quarter. That's how you can owe penalty even if you receive a refund.

 

[DJ-phYre]

Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.

Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.

We've paid ~$3k the last 2 months to cover the cost of the delivery up front.

 

[mwtgg]

Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.

Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.

We've paid ~$3k the last 2 months to cover the cost of the delivery up front.

Sure, if the expenses exceed 7.5% of your AGI and you itemize.

 

[CPA]

Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.

Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.

We've paid ~$3k the last 2 months to cover the cost of the delivery up front.

1) Sorry, baby has to be born.

2) Medical only over 7.5% of AGI and you have to itemize (Schedule A rather than take standard deduction)

Example:

$50,000 AGI (line 38)
x .075
-----------
$3,750 Med Floor

$4,000 2011 Medical Out of Pocket Exp
----------
$250 Total Deduction
-----------

 

[EagleKeeper]

Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.

Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.

We've paid ~$3k the last 2 months to cover the cost of the delivery up front.

Also, keep track of mileage w/ respect to the MD and hospital.
Those go against the 7.5%

 

[JSt0rm]

whats the best software to use doing returns. I used taxact last year but I'm putting all my deductions in this year and its geeking on me. Wont let me add over a certain number of them and it limits my deductions to whatever those first 20 or so are.

Nevermind I talked to them, the site just geeks out on me. I was able to force the right numbers in though.

 

[Dr. Detroit]

IRA or ROTH IRA for a minor - any phase out on AGI?

17yr old child holds a part time job - earnings for the year should amount to roughly $3300 on the W2.

Does my AGI count for the child as I'll claiming HOH and I'm over the limit?

I'd like to take the maximum I can and put it in a IRA for the child.


Thanks

 

[FallenHero]

I just got married this year. My wife owns her condo but my name/information is not associated with it. We make combined approximately 130k.

1) Do we have to file jointly?
2) What would get us the most return given no itemization, filing separately or jointly?

 

[EagleKeeper]

I just got married this year. My wife owns her condo but my name/information is not associated with it. We make combined approximately 130k.

1) Do we have to file jointly? No
2) What would get us the most return given no itemization, filing separately or jointly?

Some deductions are not available for Married Filing Separately.
Work out both scenarios and then file. general rule is if incomes are even; file married. If large disparity; file separate; higher income taking most of the deductions

This is why I recommend using Tax S/W on a local system.
You can build a master file (MFJ) containing all needed info, then make copies and delete the partner's income and deductions on each of the copied files; change the category of filing and have the information quickly. No re-entering the information a second and third time to setup comparisons if one was to use the Web base systems. If you screw it up to badly, start fresh with a new copy.


For the cost of $30-40 in S/W, it is well worth it in time.

 

[jteef]

I received a lump sum buyout and moved into a new job at the same time, so ill have approximately 2 full salaries putting me far past the Roth Ira limits. I read articles about a loophole to start a traditional Ira and roll it into a Roth without income limit or penalty (except the taxable nature of Roth contributions). Is there anything special to know here? do I have 2 days left to execute this or til Apr 15? Also wanted to verify I can still sell other investments to realize a loss and then rebuy to claim more deductions?

Lastly, I bought a car in December, do I need to pay the sales tax in December or is the tax deduction based on the sale date? The county wouldn't let me pay the taxes without a signed title, which is currently in express mail back to me. (Sellers bank sent title to me without signature, initially)

 

[EagleKeeper]

I received a lump sum buyout and moved into a new job at the same time, so ill have approximately 2 full salaries putting me far past the Roth Ira limits. I read articles about a loophole to start a traditional Ira and roll it into a Roth without income limit or penalty (except the taxable nature of Roth contributions). Is there anything special to know here? do I have 2 days left to execute this or til Apr 15? Also wanted to verify I can still sell other investments to realize a loss and then rebuy to claim more deductions?

Lastly, I bought a car in December, do I need to pay the sales tax in December or is the tax deduction based on the sale date? The county wouldn't let me pay the taxes without a signed title, which is currently in express mail back to me. (Sellers bank sent title to me without signature, initially)

I can not quickly comment on your loophole.

I do know that you have until April to fund 2011 accounts.
You can sell investments to create a loss as long as you do not repurchase the same investment within a set period of time.

w/ respect to sales tax.
You can only deduct the sales tax if you do not deduct your state income tax on the Schedule A.

The sales tax deduction is based on receipts or a tax table. Large ticket items (usually over 1K) can be added into the tax table value.

The tax deduction would be based on the date of payment of the tax

 

[Deptacon]

are we getting the $400 bonus again this year? making work pay i think it was called, can't remember at the moment

no handouts this year...besides, you pay for it in higher taxes later in life.

 

[96Firebird]

How is student loan interest factored in when doing taxes? I got an e-mail saying something about if I paid more than $600 in student loan interest then I can file it on my return. Any info on this?

 

[EagleKeeper]

How is student loan interest factored in when doing taxes? I got an e-mail saying something about if I paid more than $600 in student loan interest then I can file it on my return. Any info on this?

Line item #33 on the 1040/ #18 on the 1040A

You do not have to itemize.

 

[RavenSEAL]

Serious question, me and my parents are full of bewilderment right now.

I am a college student earning about 11,000-12k/year as what my school defines a "Student Assistant". I have a w-4, pay taxes bi-weekly, have no benefits and all my school stuff is on loans and grants up to 22K/year as of right now. This year, I've only earned about 6K (started my job in July).

It would obviously be nice to get a good tax refund is possible, i'll be having to buy a new car SOON as mine is about dead; it would be nice if it was a nice car (8-9K used) + Insurance. Also top that with books, meal plan, etc.

Question is, do I file with my parents who make a bout 80K year combined and take away whatever tax refund(if any) or increase their tax payment as a dependent? or, can I file by myself and [would i?] get a tax refund?

Any help is appreciated guys, hopefully this clear things up before I got talk to one of em fancy tax advisors to make sure everything is legally right.

BUMP

 

[EagleKeeper]

BUMP

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