peggysioux5

Thank you so much for the detailed info Sara; very much appreciated. Peggy Sioux

Would a gift tax return be required for 2018 being partial gift completed at time of sale?

Taxpayer purchased hot tub mid-2018. Taxpayer obtained a prescription for hot tub in October 2018. Would you consider expense to be legitimate medical expense? Peggy Sioux

Yes, sales proceeds divided between mom and children. Yes, children are on deed along with mom with life estate.

Life estate created 15 years ago and parent is now 90 and still living. Children are selling home. I realize children will pay capital gains on their share and parent should be eligible for 121 exclusion, However, I have not dealt with the actual calculations of a life estate. What IRS tables do I use to determine Life Estate/Remainder % (I think Table S, but need confirmation) and do I use table based on current age of parent , date of sale, and sale price of residence? Will I need to determine value of life estate at creation date? Or are the calculations based on original basis of parent and then percentage of Life Estate/Remainder based on parent's age at time of sale? Any direction is greatly appreciated.

The expenses in question are utility costs, upkeep of landscaping, and administrative fees, not repairs or improvements to the home. (I should have provided this information in the original post.) If the estate reimbursed executor in 2018 for 2015 through 2017 expenses, would the expenses be deductible in 2018? Thank you in advance for your input. Peggy Sioux

Taxpayer is executor of mother's estate. Mother passed away in 2015 and only asset was residence which had to be repaired prior to sale. Estate was cash poor so executor paid for expenses from 2015 to 2018 when home was sold. Taxpayer did not file any estate income tax returns from 2015 through 2017 thus no election to capitalize expenses. Probate did not begin until 2018 and executor was reimbursed for a portion of his expenses in 2018 through probate. If expenses from 2015 through 2017 were reimbursed in 2018, would those expenses be deductible in 2018 on 1041 estate income tax return or being expenditures took place in previous years and no income in those years, would those deductions be lost? (I think it would be the second choice, but hoping there is some exception being there were almost $15,000 in expenses that will be lost). Unable to make 2018 tax return final (attorney advising me that probate will take another four months)

Can an estate use the 663(b) election (the 65-day rule) if the distributions are capital gains?

Taxpayer has a small business and is also a W-2 employee in similar type work. Through his self-employment business, he has access to better rates for some material than his employer. He purchases material through his self-employment business and "sells" same product to W-2 employer at same rate of purchase. Would that be considered a reimbursement and not be considered as income/deduction for his self-employment business being there is no mark-up or should it be considered income/deductions that basically wash each other out on Schedule C?

Approximately $40,000. Peggy Sioux

So what would be the correct procedures being I have corrected W-2c's for previous years? Should I include the income in 2016 even those the 2016 W-2 is not going to reflect the award pay and attach an explanation of the situation with copies of the W-2c's? I would think the IRS would send audit letters for the previous years once they receive the W-2c's and no amended returns will have been filed; so I would handle that issue once audit letters arrive? Appreciate everyone's input. Peggy Sioux

Being taxpayer received W-2c's in 2016 for prior years, would those understatement penalties still apply?

It definitely would be more beneficial to the taxpayer to be able to amend prior year tax years rather than claim the lump sum in the current tax year. But.....what is my requirement as a tax preparer. The taxpayer has now received copies of the W-2c's and the city (large city in CA) that employees him adjusted his income box 1 of the W-2c's. Taxpayer does not pay into Social Security or Medicare so no adjustment in box 3 or 5. The taxpayer is a police officer who had a case brought against him and the outcome was in his favor so he received his back pay. Is there certain circumstances where there are exceptions?? I would think a large city would know how to properly handle. Taxpayer said that other officers who were in similar circumstances filed amended tax returns after receiving the W-2c's. Being he has W-2c's, should I amend previous years' tax returns even though the W-2c's are not in line with IRS regulations? Peggy Sioux

Taxpayer (local city employee) was awarded a large back pay in 2016 that was for 2014, 2015 and 2016. He was advised by the city that he would be receiving amended W-2's for 2014 and 2015 for portions of the back pay. I was surprised at the handling of the back pay. Pub 957 states: Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. However, for income tax purposes, the IRS treats all back pay as wages in the year paid. Are there certain circumstances where the wages would be correctly reported in the previous years? Peggy Sioux

Bumping up hoping to receive some feedback. Would the IRS deem the expenses surrounding the memorial event as "non" funeral expenses and thus deductible being event was "called for" in the Trust and Will? It seems to me he is splitting hairs - a memorial is part of the funeral expenses and therefore still be non-deductible. He stated his stance was defensible as Trust expenses due to facts and circumstances. I know that I have received direction in previous posts to file form 8202 with individual income tax returns, but just wanted to see if that would still be the recommendation based on the additional info.

I received a response from the other tax preparer who handled the filing of the 1041 and was advised that the care giver expenses were expenses paid for assisting the family with going through personal effects which he states is part of Trust Corpus and thus deductible. Would other tax preparers see that expense as a deductible expense? Secondly, the tax preparer states that the final disposition costs were not funeral costs, but were a collection of expenses surrounding the memorial event called for in the Trust and Will. The expenses included supplies, consultation services and the like......would you also see these as deductible on the 1041 with the new information? I still would not think deductible, but am no estate expert, so would appreciate other tax preparers input. He also advised me rather than filing the form 8082 if I still fill uncomfortable with the deductions to just exclude those expenses from the Schedule A 2% expenses on the individual returns. Appreciate your input.

Agreed....that is the more important question!!!!

Taxpayer refinances home mortgage in early part of 2015 and takes out $175,000. Taxpayer is using $125,000 to gift to children and the remaining $50,000 is put in saving to apply to home improvements but home improvements have not commenced. Can the $50,000 still be considered acquisition debt or is there a time period that the improvements need to be done after the refinancing of the home in order to be considered acquisition debt?

Thanks - I found the form - #8082. Still makes me uneasy if client wants to file as is and I know it is incorrect - just want to make sure I would not be penalized.

The deductions were claimed on 15a. The client is confused as she has two tax preparers giving her conflicting information and she did question the other tax preparer who adamantly assured her that the tax return was correct. Also, is there any penalties that I could receive for completing a tax return with information that I know is incorrect?

One more note regarding the 1041 - it was marked "Simple Trust" and Box G was NOT checked.

Thank you.....very much appreciated.

How would other tax preparers handle: I am handling taxpayer's returns that received a K-1 for the estate of parent. Parent had a trust and everything was to be disbursed to beneficiaries at death. Another tax preparer handled the 1041 return (there was not enough assets to file the 706 estate tax return) but had some income. The taxpayer gave me a copy of the 1041 along with the K-1. In reviewing the 1041, the taxpayer had deductions for burial expenses and for care of the parent totaling over $15,000. Those expenses carried over to the K-1's as there was not enough income to deduct on 1041. I advised taxpayer that she should double check with the tax preparer who handled the 1041 being burial and medical expenses (care for parent) were not deductible as part of the 1041 return. The tax preparer assured taxpayer that the return was correct because the estate did not exceed the 5.43 million......what should my next step be?? Do I file taxpayer's tax return based on a K-1 that is incorrect?

Thank you for pointing me to reg. 1.1001-1(e) and it would appear that the full basis that the parent has in the home would be used in the calculation to determine capital gain. And just to make sure I am understanding, then would I have a zero basis showing on the gift tax return that is required to be filed on the portion that was gifted?

I understand the difference between the FMV and consideration = gift. However, I have to show the sale of the asset on the parent's return which will show the $250,000 as the sale price, but I am unsure if the basis for the parent (to determine the capital gain that will have to be paid) has to be adjusted because a portion of the home was "gifted" to adult child and the gifted portion would also have some of the basis, is that not correct? When I file the gift tax return, I also have to determine the basis of the gift (which is the "basis" in the hands of the parent). My uncertainty is due to the "partial" gifting of the home. Thus, my question above about splitting the basis. Input would be appreciated.