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The property was sold at a loss no matter which value you use, so the basis for computing the donee's loss is the lower of donor's adjusted basis or FMV at the date of the gift, and in this case that would be the FMV of $130K. From there, the donee has additional basis of $8K of additional improvements. BHoffman, check out pub 544, use ctrl-F for "gift" and that will take you to the sections on handling sales of gifted property. Maybe this paragraph from the MTG at para 1788 will help: Gift of Code Sec 1245 or 1250 Property: The recapture of depreciation as ordinary income when a sec 1245 or sec 1250 property is sold or otherwise disposed does not apply in the case of disposition by gift or to transfers at death (except a taxable transfer of sec 1245 or sec 1250 property in satisfaction of a specific bequest of money) (Code sec 1245(b ) and 1250 (d ); Reg. sec 1.1245-4). Upon a later sale, however, the donee will realize the same amount of ordinary income that the donor would have realized if the donor had retained the property and sold it (except in the case of a tax-exempt donee). Also, if the taxpayer contributes sec 1245 or sec 1250 property to a charitable organization, the allowable charitable contribution deduction is reduced by the amount that would have been treated as ordinary income if the taxpayer had sold the asset at its fair market value. However taking this one step further, because the property was sold for less than the net book value of the donor, I don't believe there would be any recapture of depreciation because if the donor sold it for that, the donor wouldn't have recapture. I don't have time to research that, but I think the entire loss is a short-term capital loss.

DONE! THANK YOU, ERIC!

I don't understand the "parent corp" involvement in the transaction or why it is issuing a 1099. Is the corporation renting land from the individual owners? Could you clarify that, please? Who is the actual owner of this land being purchased? If the land is titled in the individual names, it seems to me that the interest should be reported as investment interest expense on Form 4952 unless the corporation is actually renting the land, and then you have rental on Sch E with the interest expense being reported there.

Was the donor's basis of $136K after depreciation deductions allowed or allowable? If you are using the FMV because it is lower, then the holding period begins on the date of the gift, so you are correct that the loss would be short term. If the cost less depreciation allowed or allowable is less than FMV, then that would be the value of the gift, the holding period would include the donor's holding period, and you would be splitting the transaction into ordinary income and cap gain income or loss if there is depreciation recapture.

You still have a partnership. It had more a 50% ownership change so you have a technical termination, but the partnership continues. It uses the same EIN. See the following links: See the last question and answer (Q16) at the bottom of this IRS page for how to handle the filing: https://www.irs.gov/Tax-Professionals/e-File-Providers-%26-Partners/Partnership-FAQs And see the last bullet point in the "Partnership" section on this page about the EIN: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Do-You-Need-a-New-EIN

If your client is the one that sold, you report the sale for whatever the brother paid him and use your client's share (1/3 ?) of the DOD value. It sounds as if the brother that purchased may have used the DOD value as the amount to purchase out the other two. If that is the case and if your client didn't incur any other fix up expenses or expenses of sale, then the sales price and basis would be the same figures and there would be zero gain or loss.

I know! All of the research materials and references I checked, including the instructions and pubs, all say SE partners can take the deduction, but it appears that this is not the case.

Exactly Lee, that is my confusion. Self-employed persons reporting on either C or F can purchase a policy in their name and call it SEHI, yet a partner with SE income must reimburse from the partnership, and that violates the ACA law that says HRAs are a no-no. It's the same situation with Medicare premiums, that a partner would have to reimburse the Medicare premiums in order to designate those as SEHI too. How can a partner ever take the SEHI deduction on line 29 of the 1040 without violating the law? Am I stuck putting these premiums on Sch A then?

That's something that that is found in all good research/reference materials. I know that RIA, CCH and The Tax Book have sections or online links to a state section that covers this. Taxman, I assume you are a current user of The Tax Book since you've posted on that forum during this season.

Thanks for the reminder. I MUST do some laundry later.

In order for a partner to claim the self-employed health insurance deduction, the instructions say that the policy can be in either the name of the individual or the business, and if the premiums are paid personally, then the partnership must reimburse the partner and include those reimbursements in guaranteed payments reported on the K-1 ( ETA - must be on the K-1 in order for the policy to be considered in the business name). Isn't there still the conflict between the DOL rules and IRS rules regarding medical reimbursements? If the partnership reimbursed the premiums, wouldn't this constitute a medical reimbursement plan and violate the ACA rules and expose the business to the $100 per day penalty? I'm confused.

If it's as bad as that, I don't blame you for changing programs. I guess it might be safe if double checking everything and e-filing right away, if you have that type of practice. For those that have the delay of waiting for the client to return those signature forms, then you will have to check those returns again before submitting to make sure nothing is lost or has changed yet again. This business has enough stress without having software worries adding to it.

It has a cover sheet that can be selected to print with every return. It must be a fairly standard layout because the Tenenz site says that the same folders with dye-cut windows will work with the Drake, Taxwise, Refunds Today, and Ultimate Tax. If you load up the 2014 CD or download from the Drake site, you can play with the practice returns and have a look at these things you are asking about. I don't know that you should necessarily be afraid of going back to ATX or writing it off your list of possibilities. It's true that the entire program had its overhaul and the engine that runs it is different, and the way it stores files, but the look of the input should be familiar to you. Aside from some of the glitches that you've probably read about, the program has had many enhancements since you last used it. There may be some comfort to you in going back to a product whose input looks familiar to you, especially at this point in the season. I didn't have an overly hard time adapting to Drake, and I do think it is faster than ATX now that I'm familiar with it. It meets my needs and I'm happy with it, but it isn't for everyone, and I transitioned in early February, not mid-March. There is no one-size-fits-all, so you should load up that 2014 program and try it out.

^ this is the usual reason.

Client should know which policy he was paying on and when. This sounds like a reporting error on the 1095 to me. Client needs to call the marketplace to discuss and request corrected forms. One client I have is still waiting on corrected forms after having contacted the marketplace in late Jan and again in early Feb. If it's the federal marketplace you are dealing with, the marketplace will contact your client a few weeks later to discuss and figure out if a corrected form is warranted, and then the client will be waiting some more.

Yes, it has the K-1 letters and a variety of letters to choose from for all the types of returns. They are easily customized too. I use the shortened letter that gives the highlights of balance due or refund in block-style format without much in the way of instructions, but there are more comprehensive and detailed letters available. The program also has a nice 3-year comparison and a summary sheet also.

I'm sorry you are dealing with stupidity. That may be the winner of the most stupid response ever from a tech support person.

The balance sheet on the tax return should be completed using the method of accounting used for book purposes. If that method happens to be accrual on the income tax basis of accounting, then the balance sheet on the return would be tax basis.

To answer your questions, the tax return balance sheet should reflect the "book" method balances with the timing differences on M-1 as cbslee described above. I converted my last company over to tax method when the banker requested it because she couldn't understand the the various differences creating the deferred income tax assets. Years ago I had a company that had a small error in the beginning balances that I corrected by changing to correct amounts on the return and attaching a statement explaining it and that the correction had no effect on any year's taxable income or income tax liability. A difference of $100K is no small potatoes. I'm not sure if that would get someone's attention or not. It is possible that this was sloppy input by the previous preparer where the tax software balanced the return by changing the retained earnings. Mine will try to do that and is the reason I always turn the auto-balancing feature off. I know what the #s should be and will input each one, look to the error report for differences, and then I go back to the input to fix the dollar or two of rounding as needed.

Depending on how many you have left, it may be less expensive to use pay per return with Drake at this point, or at least would save you the cash outlay upfront. I did that the first year. If you go with Drake and have questions, don't hesitate to ask. One thing that helped me was to convert the prior year returns into Drake and view the input of those returns. It gave me a good idea of how and where to input for the current year being prepared.

Does the company have financial reporting needs with outsiders? If not, it might be easier to convert the book accounting to tax basis reporting than the other way around.

Unless you are both in the same firm and share an EFIN, how is he going to file using your ATX?

All good ideas. I've also used plain financial statement covers and my binding machine. The covers are not embossed and have a dye cut window that I can customize a title sheet with the appropriate description to show through. I use binding combs that allow the presentation to lay open flat, not those binders with spikes on a strip.

Just to state the obvious, you should address this with a letter to the taxpayers that they can then provide to the lender. Do not communicate anything directly to the lender. You don't want that level of contact, and you don't want to open yourself up to the bank requesting a comfort letter that lenders so love to have in their files.

^ that is exactly what I was going to post. It's explained fairly succinctly in Rev Proc 2002-69 that is only a couple of pages long. It clearly states that the IRS will accept filing by a H-W owned entity in community property as either a disregarded entity or a partnership. You might have to explain that the ownership in the trust name is also disregarded while the grantor is alive. At this point I would not amend the return to accommodate the bank. The borrower may have to move this up to a higher level lending officer or loan committee, or find a lender that understands the law.