Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for February 21st, 2006

Where some overly creative accountants end up.

Posted by taxguru on February 21, 2006

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Posted by taxguru on February 21, 2006

Tax cuts make money – Amazing to see this in the normally lefty US Today.

 

A Better Way to Tax – An endorsement of the FairTax plan from someone at MIT.

 

Treasury and IRS Provide Guidance for energy Credits for Homeowners

 

Feds Bust More Professional Tax Scammers

St. Paul Preparer Allegedly Claims False Head-of-Household Filing Status for Married Customers

Pure equity trust scams based in Tacoma

 

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Posted by taxguru on February 21, 2006

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Used Vehicles Qualify For Sec. 179

Posted by taxguru on February 21, 2006

Q:

Subject: Section 179 of the Internal Revenue Code
 
Good Afternoon,
 
In regards to Section 179 of the Internal Revenue Code. I have a small computer repair company I need to purchase a larger truck to visit clients and move equipment. I would prefer to purchase an SUV as that would be more practical than a Van . My question is does the auto need to be new or can it be used.

Thank You

A:

It just has to be new to you; not brand new.

You can see the rules for Section 179, including the weights of SUVs, on my main website.

You really should be working directly with a tax pro who can help you tailor things to your unique circumstances.

Good luck.

Kerry Kerstetter

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Using Quicken For Rentals

Posted by taxguru on February 21, 2006

Q:

Subject: Kerry’s Quicken Tips
 
Thanks very much for this free article! This is by far the best information I’ve found anywhere to use Quicken for rentals I am starting.  A point of confusion (from Quicken Forums) I’m still working on is:
 
Do I need 2 accounts for each property, a cost basis account and an expense account?
 
Or is a Cost Basis account per property sufficient, where principle payments and improvements are transferred to it from cash/credit card, and expense reports are generated from classes ?
 
An article in Quicken Forums has one splitting an improvement expense so it is transferred to cost basis account AND is categorized in the  cash/credit card account. I just don’t know how relevant this is.
 
I’ll gladly pay for this info. Thanks

A:

If you are going to properly account for your rental properties, you are in serious need of some training from a professional accountant because I can see that you are very unclear on how things work. 

I don’t have time to give an entire lesson, but here are a few fundamentals that you will need to cover with your personal advisor.

There are basically two types of expenditure – those that affect the balance sheet and those that affect the income statement (P&L). 

Balance sheet payments are generally capital improvements that are set up as fixed assets and depreciated on your tax return, and payments of loan principal, which reduce the loan liability balance. 

Principal payments do not get transferred to the property’s cost basis.  When you book the purchase of your property, you debit the fixed asset account for the full cost and credit the cash you paid and the full amount of the loan.

Income statement expenditures are operating expenses, including mortgage interest.  Because you need to have  a Schedule E for each property, it’s best to set up a Class in your Quicken for each property that will coincide with the Schedule E columns when you run a  P&L with columns by Class.

Good luck.

Kerry Kerstetter

 

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Home Sale

Posted by taxguru on February 21, 2006

Q:

Subject: capital gains tax
 
Hello,
 
I am from Virginia and I have a property(condo) that I want to sell and have lived in for less than two years.  I only want to sell inorder to acquire a larger property for my family.  I have only gained 21,000 of value in my home and want to use that $ for closing costs and expenses.  I do not want to pay capital gains tax and am not sure what the regulations are.  Can you help me out or give me a place where I can get some information?  I have been getting confliction information from many different places.  I only have one primary residence.
 
Thank you

A:

You should be working with a tax pro to ensure that you have properly accounted for the total cost basis of your home.  There is a good chance that you may have overlooked a lot of additional costs that will reduce your net gain.  Your net gain will also be reduced by your selling and closing costs.  Chances are that the actual potential taxable gain will be either nonexistent or so small as to not be worth a lot of worry.

I have a lot of info on home sales here on my main website.

If you do a Google search on my blog, you will also find dozens of posts discussing home sales.

Good luck.

Kerry Kerstetter

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