DANRVAN

Then med insurance premiums up to that amount including LTC and medicare (but see below) are deductible. See section 162(l). If under a sec 105 plan, then not taxable. However, the medicare reimbursement would be considered a subsidized health plan; therefore the remaining 25% would not be deductible as SEHI, but that does not effect supplemental or LTC. I am not aware of anything in the code that would prevent a new retiree from starting up a part time business and make just enough to cover his and hers health insurance premiums.

Are you referring to 2022 or 2023? So he was both an employee and self-employed until Dec 2022?

That is correct, assuming he was the original sole owner of the stock and did not aquire through purchase, inheritance or gift. That is correct. Since the C-corp is a separate taxable entity, retained earnings do not change basis and are subject to double taxation. His basis equals his investment; internal transactions do not change it with a C corp.

Just curious how you have now determined it had not been depreciated either in full or part? Also, how are you going to determine if the improvements (either in full or in part) have not been written off as expenses over the years? In order to include the improvements in the 481(a) adjustment, you will need the date placed in service to determine the amount of depreciation allowed or allowable.

Section 645 is one of the shortest sections of the code. Anyone working with estates should be aware of it.

If you did not switch to a calendar 2 years after DOD (assuming a 706 was not required) you would be out of compliance to continue with a "fiscal" year. Also, you should know that a 645 election is irrevocable; you can not terminate it until the election period ends.

A 645 election. You mean to a calendar year? You must not be familiar with an election under section 645 which allows the trust to file as an estate, however there is a time limit. In most situations, the election period ends two years after date of death. So for 2022 two returns (and related K-1's) are required regardless.

So are you saying brother A will receive an additional amount for the unpaid taxes of his brothers; and then take the responsibility to pay the county? If that is the case, it becomes a wash for him. No additional income or deduction.

Meant to say " greater of the amount he paid for the 2/3 or the basis of the transferors"

In theory his is taking the brothers basis as adjusted immediately before the sale. $66,000. But in practice he is taking their disallowed loss and adding it to his actually cost basis from the July transaction. Either way the result is the same, $66,000 basis for 2/3 interest. The result would be the same if we look at it as partial sale / partial gift since he paid less that fmv to brothers. In that case his basis would be the greater of the amount he paid for the 2/3 of the basis of the transferors (brothers), or again $66,000. However I don't think we can call it a partial gift since the transaction lacks the element of gratuity. Are you saying he has paid some of his brothers' share of the taxes and is expecting reimbursement from escrow? If so, has he previously deducted the amount paid for his brother's share?

Yes, the return must be filed and payment made by March 1. They are multiple IRS sources to confirm. In those cases, I politely terminate the call. Then call back and talk to someone else with more knowledge. When I make the initial call, I have a copy of the POA ready to fax the rep on a separate phone line.

On second thought, it could be argued that expenses in respect to the July transaction are related to the acquisition of the 2/3 from brothers.

So it was a forced sale and title passed directly from brothers. As Sara EA pointed out, the July transaction was a related party sale, so brothers B and C have disallowed losses of $6,667 each. The disallowed losses are transferred to brother A and reduce his short term gain to $2,000. Agree that his LT gain is $1,000. Yes to both.

Did the county actually take possession and title of the property. But if the county took possession and title, then sold the property that would change my answer. There would then be three transactions, the first being the foreclosure by the county, which would be treated as a sale for all three brothers offset by DOD adjusted basis. The second transaction would be the purchase by brother A from the county for $79,000. Off the top of my head I don't think that would be treated as a related party transaction, but I would look into it. The third transaction would be the final sale by A of $102,000 offset by $79,000 basis.

I agree with what you are saying. I think it is a good idea to lay out all the options for the client and let him decide which direction he wants to go. As Lee B pointed out the "Build to Suit" route is complicated and risky, but client should be aware of the option.

From an AICPA source: Another potential structure is to insert a "straw man" on the front end to own and construct the property. For example, an exchanger could locate a builder who will act as the straw man and acquire land or a building to be renovated and construct the desired facility or make the requested renovations to what will be the replacement property. In this example, the builder is the owner of the project while the construction is taking place. This means that the exchange process has not started and, more importantly, that the 180-day exchange period has not started, so any construction delays are not potentially disqualifying. When the replacement property is ready, the exchange can be executed using a standard forward exchange. Under the straw man exchange structure: An unrelated party acts as a straw man to own the project while construction or renovation is taking place; The actual exchange does not happen until the relinquished property is sold and the replacement property is ready for use; A standard forward exchange can be executed; Construction or renovation can begin before the sale of the relinquished property; and The exchange can be further delayed if a buyer for the relinquished property is not identified until after the replacement property is available.

I agree with you on that statement. For the first transaction, brother A purchased the interest of his brothers B and C for consideration of $26,333 each. B and C each had a basis of $33,000 and therefore incurred unallowable losses of $6,667 due to the related party rules. (That is assuming there have been not been any adjustments to basis since mom's DOD). However, for brother A, I can't visualize how he could have actually bought and sold his own share in the same transaction. It appears he is entitled to most all of his share of the $79,000 that was placed in escrow, since the lien is against property taxes owed by his brothers. Therefore, for brother A, the transaction for the most part would be a wash. Any expense he incurs for the transaction will increase his basis. Excellent point! As I see it, he has a basis in his original share of $33,000. Plus he paid each brother $26,333 for their shares. Also per sect 267(d)(1) the disallowed losses of his brothers are also transferred to him. So he ends up with a gain of $3,000 based on the known facts. I have to disagree on that point. He held one third of the property long term and 2/3 short term.

Since the property was sold in it's entirety, as I understand it, a portion of the $79,000 should got back to him So disregarding any other expenses related to the JULY 2023 sell and purchase, your client is entitled to 1/3, $26,333. Then the unpaid taxes owed by his brothers would come out of the balance and the remainder split between them. Each of the two brothers would realize $26,333 from the sale, which would include their tax debt, which was paid off for them, and the actual cash they received. The actual cost to your client for the 2/3 would be $79,000 he paid less the $26,333 he should have received from the escrow account, subject to additional cost and expenses. So as I see it, the basis of his brothers shares is $52.667. For sure the sale November 10 transaction needs to be reported, and get an estimate from clients attorney on which direction the escrow might go. The difference might result in a separate transaction to report in 2024 or an amendment to the 2023 tax return. I don't see why that would apply to the 2/3 from brothers held for four months or less.

The key is he cannot take possession of the land until the building is completed. I don't think the article mentioned another strategy where contractor buys land (not the existing land) and constructs the building before the exchange takes place.

Step transaction doctrine. He sells land to contractor then buy it back? I see an issue of substance over form.

but if he puts a new building on the new land, the building does not qualify.

There is no "exchange" in this situation. Replacement period is moot point.

I believe it is better to request a check, otherwise the bank might reject the deposit since the name on the account does not match that of the deceased tax payer.

Not unless it falls in into the the disguised sales rules and becomes a deemed sale of the asset to the company.

There is not enough information given. The answer is either (a) or $525,000. There is no logic behind answers b or c. Just because the property was solely titled by deceased spouse does not mean it goes 100% to his estate. For example if he acquired the property with money he earned during the married, it could be considered marital property and 1/2 would go to his estate. If on the other hand he acquired the property before the marriage. it would most likely be considered separate property and go 100% to his estate. There are several factors in determining if the property is marital or separate for estate purpose and determining basis. If considered marital property then surviving spouse gets 1/2 stepped up basis, so in this case her net basis is $525,000. Answer (a) would be correct if they reside in a community property state. Apparently you do not understand the concept of stepped up basis; it is a clean slate and prior depreciation is disregarded.