jainen

>>medical care and assistance much like what is provided in an extended care facility<< But it WASN'T in an extended care facility, where even the laundry maids are are supervised by a doctor. On behalf of qualified nurses and aides everywhere, I protest the implication that untrained family members can provide appropriate medical care. What say I? No deduction, and file Schedule H. (And by the way, I had a rough day).

>>I entered on 1099R and got no flow to 1040<< Code P means it's taxable in the previous year, requiring an amended return. I had one yesterday that was a small amount, so I left the code blank and my software happily included it in this year's income. I think it's more likely than not that the IRS won't get too upset.

>>Is the whole amount subject to the 10% penalty or just the earnings? << Just the earnings. They already paid tax on the principal before they deposited it. That's why you need to tell your software what the basis is, which is another word for principal.

>>No basis was ever entered for either one.<< Well, then, enter their basis. You can't expect your software to perform reliably if you don't give it all the data it needs.

>>For hubby the 8606 and 5329 popped up<< Here's the deal, Ray in Ohio. When you entered those two 1099s exactly the same, what did they say about the basis that shows on Form 8606? Nothing! That was already in your computer, and it is NOT exactly the same for the little woman.

>>If I combine the amounts and code them as spouse's, she gets penalized nothing. << This is why we need to elect a woman as President!

>>other than that, they are entered exactly the same<< Okay then, they are entered the same. Same dollar amounts, I suppose? But what are they entered IN to? Is your software tracking exactly the same basis for each account?

>>they're entered exactly same<< But they aren't supposed to be entered exactly the same--one of them should be coded for spouse!

>>simply by filing bankruptcy the amount reported on the 1099-C is not taxable income<< Not true. The bankruptcy exception ONLY applies if the specific debt was discharged by court order. That doesn't necessarily happen in Chapter 13, and even in Chapter 7 secured debt is the last to go. There could also be any number of reasons the debt was cancelled before, after, or otherwise outside of the court proceedings.

>>zero NY income... it seems to be correct<< Are you sure? Because even for a non-resident, New York taxable income is calculated from world-wide income as reported on the federal 1040, without regard to how much of that might be New York source.

>>use Balance of principal as Sales Price on Sch. D or FMV?<< Why use either? The instructions for Schedule D say not to report a Section 121 exclusion unless there is additional non-excluded gain. By the way, doesn't the mortgage company now owe your client $10,000, since the house sold for more than the loan amount?

>>Can this be amended as Sched A Misc Job expense (all in 1yr) or do I need to amend 04 & 05 to get College Lifetime Credits<< Although the degree may have had some relevance to work, it was not job-related. It was part of the compensation package, mostly a taxable fringe benefit with less than a third eligible for pre-tax reimbursement. The worker was required to repay the compensation because he did not fulfill the requirements to earn it. You can't take a deduction for repaying a non-taxable fringe benefit, and you can't take a job expense deduction for personal costs even if you pay them to the employer. Lifetime Learning Credit is only available for expenses paid in or before the school year. His expenses were reimbursed, and there is no provision for late payments or repayments. This debt and payment arose years after and independent of the coursework. It is simply a personal note with no tax consequences to the worker.

>>except for two rules: the greater sales price and greater debt rules<< Yes, the taxpayer must follow the 1031 rules exactly. But there are no such rules about buying up. 1031 is an enormously flexible technique. You can use it to buy up, buy down, consolidate or diversify investments, change the type of property, even cash out or bring in partners. The worst that will happen is capital gains on the particular part that doesn't qualify. In your case, you may find that there was some cash or mortgage boot received if they didn't roll over 100% of the equity. Usually a qualified intermediary will make sure the rules are followed concerning things like chain of title and dates. They are not so helpful in matching values of like kind property, so read the paperwork carefully.

>>it made her feel big and strong<< That should always be the #1 strategy in any IRS audit. And it makes sense, because they ARE big and strong.

>>What was this lady smoking?<< One of my favorite things on these internet forums is defending the IRS. I pretty much have the field to myself here. Your clients, Bulldog Tom, were caught red handed in an egregious, fraudulent lie. Selling their immortal souls for a bit of tax credit, as it were. By rights the IRS ought to slam a two-year sanction on them, along with all the financial penalties. You're darn lucky you drew one of the bureaucratic types who just wants some meaningless piece of paper to photocopy for her file. I don't know what is "all the trouble" of ordinary records like a doctor bill or school registration or lease. You're getting off easy, my friend. Write the letter, Tom. You can give it to the clients along with your invoice for a successful representation. Win-win. The auditor is proud to have forced a professional to back down; the taxpayers get a check which they share with you. Why, I wouldn't even bother pointing out that under the code they CAN'T change from joint to MFS.

>>She will have to pay on the depreciation any time she sells<< Come on, folks. The client is trying to develop a long-term plan here -- don't we WANT them to come to us for ideas? I can think of plenty of possibilities One way to avoid capital gains attributed to depreciation is to simply sell at a loss. What, can that really be a legitimate strategy? Sure. In the market we are now entering you might not have any other choice anyway. So you might well think about capital gains tax as you decide exactly when "in 2-5 years" would be best, and how important holding out for the highest price is. Another approach is to realize enough profit to offset the tax hit, although technically you are still paying the tax. Improving the property's specialized advantages for business use might help in that. Another way is to sell in a year when you have capital losses, perhaps from stocks, to offset the gain on Schedule D. Large losses might be simply wasted otherwise. Another way is to trade the business-use property in a 1031 exchange, perhaps by opening a day care center in the new home. Another strategy could be developed around a casualty loss or involuntary conversion. Or by dealing in leaseholds like the big corporations do. Wow! A client asking how to structure a real estate sale AHEAD of time. Surely it's the end of the world.

>>it wasn't an ad in our bulletin<< About 80% of my private clients contact me only by phone with fax or mail followup, since they are in a different city where I used to work. I assumed the "notice" was an ad because it had a distinctly commercial ring to it, though it used a loss leader to get the message out. Complain to your board about the implied church endorsement, because THAT is something the IRS doesn't allow.

>>IRS doesn't even know you can do it<< Do what? Prepare an easy tax return without charge? Start an interview with estimates? Protect client confidentiality? E-file? Or maybe you just don't want your competition buying ads in your bulletin?

>>Can he claim either of them on his tax return (1040)?<< He can file a joint return with his wife, but his child is not a tax dependent. You are required to advise him to amend his incorrectly filed return. But he should seek legal counsel about that;if it is determined to be fraudulent (which it would seem to be) he may be deported.

>>haven't seen her in days<< The last thing kc wrote was, "And remember the 14 day rule. If it's less than 14 days, total, does not have to be reported at all, but no expenses either." The topic was vacation rentals. We all thought she was talking about the rentals, but now it seems she was actually talking about the vacation!

>>only he qualified for the exclusion<< Good news #2. Section 121 only requires one of the spouses to meet the 2 year ownership test, as long as both meet the 2 year usage test.

>>Trust owns house....<<.. Finally I get to say something non-controversial that favors the client. A family trust is another name for living trust. Because the grantors can revoke it, it is ignored for purposes of income tax. Apply Section 121 in the normal way.

>>you have failed to consider my pogo stick & hot air balloon<< Okay, I admit I forgot about hot air balloons. But not pogo sticks--I just assumed pogo sticks are always used for non-deductible commuting like mine.

>>the motorcycle qualifies for the standard mileage rate<< You can usually count on me for a dissenting point of view. The current Revenue Procedure for standard mileage is 2007-70. "The term 'standard mileage rate' means the applicable amount provided by the Service for optional use by employees or self-employed individuals in computing the deductible costs of operating automobiles (including vans, pickups, or panel trucks) they own or lease for business purposes." In the rules for listed property, trucks and vans are included with passenger cars specifically because they have four wheels. Motorcycles fall under the category of "other property used for transportation." Admittedly you could argue that's not directly related to this discussion, but the IRS makes the same distinction in Pub 463, its main discussion of standard mileage allowance and other car expenses. On page 17 it says, "Car Defined. For purposes of depreciation, a car is any four-wheeled vehicle (including a truck or van)..." Standard mileage is a method of depreciation, and closely tied to other depreciation rules. In my opinion, a motorcycle is no more eligible for standard mileage allowance than a boat or airplane.

>>what forms I need<< Use California Form 540NR with Schedule CA(540NR).