jainen

>>Received respons 12031<< Bad news--I didn't know what this meant, so I Googled it. "12031. (a)(1) A person is guilty of carrying a loaded firearm when he or she carries a loaded firearm on his or her person or in a vehicle while in any public place or on any public street in an incorporated city or in any public place or on any public street in a prohibited area of unincorporated territory.... "

>>client actually received that money as the keys refund as stated by bank notification<< Don't be misled by the polite term "refund." It kind of sounds like a cleaning deposit, but the bank paid extra for the homeowner to vacate quickly and quietly. Taxable on Line 21; not relevant to the questions of COD and capital gain.

>>equip with 100 bonus depr<< A "used bike" is not qualified property for bonus depreciation. According to the Instructions to Form 4562, "The original use of the qualified property must begin with you."

>>I will bet a steak dinner that Congress changes it before Dec. 31, 2012<< Right--nothing like an election year! Those politicians will be fighting in the halls to take credit for raising tax rates on low income. Terry's 101-year-old grandmother can be the poster child.

>>Remember when we had the telephone tax rebate<< How can we forget, since the procedure for filing is STILL in litigation? Just this week a district court threw the whole thing out! http://www.fedregsadvisor.com/tag/notice-2006-50/ But that was not really a similar situation, because there was a special form for it, Form 1040EZ-T.

>>cashed in CD's, stocks etc.... Line 44 is blank<< That line on the form is titled "Tax (see instructions)." According to the instructions you would see, "If you have to file Schedule D... use the Schedule D Tax Worksheet." Remember that for long term capital gains in her tax bracket the rate is zero.

>>Thanks for your opinion<< My opinion is that it is an interesting story, but full of irrelevant stuff. You didn't actually explain why "Doc had to quit her job." According to Pub 590, "You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration."

>>the mortgage company forgave over $125,000<< They didn't forgive all that much if they got $90,000 from the sale. Why did they say the FMV was only $79,000? Track the acquisition debt to determine if the exclusion for qualified real property business is applicable. But you have to use the insolvency exclusion first, and that requires a basis adjustment increasing her capital gain. She has already reduced basis by more than $3400 per year depreciation, so she may well owe substantial tax on her refinancing binge.

>>Can this be offset by gambling losses?<< Sorry, no. The reason it is on a 1099 instead of a W2-G is that it is NOT income from a wager.

>>why should he have paid taxes and how does he get those taxes paid back<< The answer to the first part, "why," is "because." That's the way our elected representatives wrote the tax law. The answer to the second part, "how," is on page 36 of Pub 525. It is such an unpleasant answer that I won't ruin our good mood by posting it. Look it up in the quiet privacy of your own office.

>>I do not know what to do with it<< Look on Question I. If it says IRA, that is not your client.

>>Your are recaputing the depr since you have to pay taxes on it.<< That is not correct. The depreciation was deducted as ordinary income, It stays that way and is NOT added back. You pay taxes only on the capital gain, if any. If, for example, listed property falls to 50% or less business usage, you recapture excess depreciation over straight line, by adding it to ordinary income. Additional income equals additional tax. But the original post is about residential rental that used straight line from the beginning, so there is no excess depreciation and nothing is recaptured. You pay taxes only on the capital gain, if any.

>>leery of e-filing a MFS return<< It's not the efile that bothers me. Yes, if they file MFS extensions they can still change to MFJ. Or they could amend to MFJ later.

>>installment sale without the fees.... This is so like the IRS to do this to people<< A bit inconsistent, wanting to control the payment schedule without a formal IRS agreement but then being upset that the IRS won't control it. >>the university only wants an IRS transcrip<< I beg to differ. All that the school wants is the money. And if FAFSA actually required an IRS transcript in February, the entire educational industry would collapse along with our military planners who ride on the undergraduate tuition. So answer question number 32, and support our troops!

>>how do you handle the adjustment for the Federal withholding<< Good question! The only reasonable way is the awkward "share" from Pub 555. Add it to the worksheet so all your notes are on a single page. I haven't done one of these in a couple of years, and back then we couldn't efile MFS from a community property state. Now I believe there is a way, but I greatly discourage/refuse MFS with community income. If they're so determined to keep their stuff away from their ever-lovin', let 'em just sign a pre-nup! As Joan points out, the problem in California these days is UN-married joint and MFS filers.

>>I will have to report a gain of $45K of which $20K will be depreciation recapture.<< What is all this about depreciation recapture? There is NO recapture for residential MACRS on Straight Line. Nothing! In Scenario One, Pacun, basis for depreciation is the lower of FMV or adjusted basis at conversion. But basis for gain or loss is still the original purchase adjusted for depreciation. If there were a gain, the first $20K would be taxed at a maximum capital gains rate of 25%. Maximum of only 15% for anything above that. But the original post had just a plain long term capital loss. Probably report as business property on Form 4797, even though it still would have qualified for Section 121 exclusion if there had been a gain. A better wuestion is whether it was a business loss or non-deductible personal.

>>add this to the depreciation schedual and take the percentage<< Hopefully your software will carry the depreciation to the 8829 and automatically calculate the percentage of use. But remember to first reduce the basis by the amount of credit.

>>how to save some time with the extensions<< I've got lots of time in January. Maybe next year I'll include an extension form and envelope with the organizer, using last year's balance due. If they get the package back to me, fine. Otherwise, it's their problem.

>>did CA make a mistake on my return?<< Maybe, but without knowing any details I guess it more likely you made the adjustment an extra time while your software already did it automatically. For our esteemed colleagues across the country, this is an example of how silly California taxes are. Almost nothing except pensions are treated the same way in California as on the federal return, until the state legislature passes a conformity bill later on. For 2011 the feds offer self-employed a small break similar to the reduction in employee FICA. This noble state, which shouldn't care about Social Security taxes one way or another, doesn't agree. So the Line 27 deduction is little smaller for the state return, which makes AGI a little higher, which makes itemized deductions a little smaller, which makes our fees a little higher.

>>instructions for line 13 of form 8863 appear to be kinda confusing<< Remember that high income families can shift the credit to a dependent child's return. They just can't generate a refundable credit that way.

>>how to enter W-2 info into tax software when doing a MFS return in a community property state<< According to Pub 555, "List only your share of the income and deductions on the appropriate lines of your separate tax returns." But nobody does it that way, because obviously none of the W-2 entries will match. Create a spreadsheet (I just use pencil & paper) with four columns. First two are the source and amount of income or deduction. The others are allocations to either spouse. Often it's 50/50, but you can't assume that especially if the spouses do not live together. Then enter all items in the usual way, and make a summary adjustment called "allocation for community income" plus or minus on Line 21.

>>Dagres, 136 T.C. No. 12<< This is not a very similar case. Dagres managed venture capital funds through his LLC, and loaned the money not to his own company but to outside person generating leads. His dominant motivation was generating those leads, a matter of business operations rather than capitalization. There are many other cases of employee loans, and they are NOT all decided in favor of business treatment. I have no particular reason to doubt David's original post, but I'm always skeptical when someone uses the general term "documentation" without explaining what that actually includes.

>>If.... But.... << Anybody interested in what Americorps has to say? "The Segal AmeriCorps Education Award, unlike most other forms of scholarships and fellowships, is subject to federal tax in the year the payment is made. It is considered taxable income regardless of whether it’s used for current educational expenses or to repay a qualified student loan.... IRS Publication 970, Tax Benefits for Education explains tax benefits that may be available to members who are using education awards to pay for current educational expenses or to repay qualified student loans." So Line 21, and education credits/deduction in the ordinary way.

>>Converted to personal use in 2010 and then traded in 2011 for another one which is used for personal use. Do I really need to show it as a sale or adjust the basis on the new one for a future sell?<< Neat tricks! You have to recapture Section 1245 depreciation (to the extent of gain) when you dispose of a business asset. But can you avoid recapture by retiring it from business use for a spell? Actually, no. Or how about rolling the gain on personal-use property into replacement property like a 1031 exchange? Nope, not that either.

>>I hope Jainen can reply<< Thanks for the invitation. Since you are talking about "depreciation recapture" for a rental house, I can't make any sense out of your post.