Don’t Take a Bath By Ignoring the ‘Wash Sale’ Rule on Stock Losses – From Gail Buckner
Archive for December 22nd, 2006
Beware of Wash Sales
Posted by taxguru on December 22, 2006
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Posted by taxguru on December 22, 2006
Numerous Changes Show Up on the New Form 1040—and More Are Coming – From the latest Intuit ProConnection Newsletter
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State Kiddie Tax
Posted by taxguru on December 22, 2006
From a reader:
Subject: partially dodging the revised Kiddie taxCalifornia has not adopted the increase to age 18 for the Kiddie Tax. This gives Californians an opportunity to realize gains this year and pay only 15% federal tax. That’s more than the 5% it would have been without the retroactive tax increase, but it’s less than the 24.3% it would have been had California conformed to the new federal rule.If California conforms for 2007, people with teens aged 14 to 16 this year will wish they had realized those gains in 2006. Taking the gains now avoids another 9.3% tax hike.You might want to check out which states have conformed and which have not, and advise your readers. Please don’t quote me on this one if possible. I’d rather you take the credit, since you’ll be the one doing the research and writing.
My reply:
That’s a very interesting loophole for people to consider. I don’t have time to research each state’s conformity with the federal law, but I hope tax pros around the country are checking on whether their states will allow for a similar maneuver.
Thanks for writing.
Kerry Kerstetter
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SUV Under 6,000 Pounds
Posted by taxguru on December 22, 2006
Q:
Subject: section 179Dear Sirs,I know this is a subjuect that you’ve probably grown tired of years ago but I must ask. I am buying a used SUV(Ford Expedition) I know it says the vehicle only has to be new to you but what if the vehicle does not weigh 6,000lbs? The vehicle is a 1999 model and the price is $10,000. I would like to make this purchase before the end of the year to put on my taxes for 2006. Thank you.
A:
This is the exact kind of issue you should be discussing with your own personal tax professional. However, for the benefit of others, I’ll explain a few things.
Most people don’t have a clue where the 6,000 pound issue originated. Starting with a law passed by our rulers in 1984, the depreciation deductions (including Section 179 expensing) for vehicles were severely limited because so many big-mouths were going around bragging about buying and fully depreciating $75,000 cars every three years. That is why the allowable depreciation for vehicles is so low, currently only $14,160 over five years for a 100% business vehicle.
Back with that law in 1984, there was a need to distinguish between regular passenger vehicles, which were subject to these new luxury car limits, and utility vehicles that were supposedly not being abused as much. The break point was a gross vehicle weight of 6,000 pounds or more. Any business vehicle weighing more than that was not subject to the luxury car limits and the full cost of the vehicle was eligible for depreciation over five years and the applicable Section 179. This is basically what we still have today.
In your case, with an SUV weighing less than 6,000 pounds, you would have to use the normal vehicle depreciation schedule, which allows only a $2,960 first year depreciation deduction, prorated by the business percentage.
Again, your personal professional tax advisor can explain how this affects your particular situation in more detail.
Good luck.
Kerry Kerstetter
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Tax Guru - Ker$tetter Letter 