Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for May, 2007

Special Tri-State Depreciation?

Posted by taxguru on May 27, 2007

Q:

Subject: re 2002 2003 sec 179 

Kerry:

in the tristate area for 2002 and 2003, there was a ruling to spur capital investment and businesses could purchase a vehicle and depending on the cost could take $25K + 10% dep + that year’s depreciation.   Can you enlighten me on the nuances of this rule and how to best apply it?

Thanx

 

A:

This doesn’t ring a bell with me.  I checked in my 2003 references and didn’t see it mentioned.

Are you perhaps confusing that with the special depreciation deductions allowed for New York Liberty Zone property?  This is for almost all kinds of business equipment, not just vehicles and is only for the specific part of Manhattan, not the full Tri-States, and covers assets acquired and placed into  service from 9/11/01 through 12/31/06.

If it’s a State tax break you are referring to, you should check with your state tax agency for more specifics.

I’m sorry I couldn’t be more help.  Good luck.

Kerry Kerstetter 

 

 

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Posted in 179 | Comments Off on Special Tri-State Depreciation?

Gifting Options

Posted by taxguru on May 27, 2007

Q:

Subject: Capital Gains Taxes Aren’t for the ‘Kiddies’

Let me see if I understand this in a real world application:
My 80-yr old mother, living on welfare, needs to pay for something (home repair, what have you) but doesn’t have the money (say $5,000).

I could sell some stocks and give her the money, but we’d both be better off if instead of giving her the money I gave her the stocks that she could then sell.
Sound right?

 

A:

Decisions like this would obviously be on a case by case basis.  However, if you have highly appreciated assets, such as stocks, that would trigger a large capital gain tax, shifting that tax to someone in a lower tax bracket could result in some tax savings. 

This obviously needs to be balanced out with the hassle and cost of transferring the title to the asset, as well as the possible cost and hassle of having to prepare Gift Tax returns if the total current fair market value of gifts to any one person during a calendar year exceeds $12,000.

Kerry

 

Follow-Up:

Oh.  I forgot to mention it was merely a hypothetical.  I wasn’t seeking actual advice.

I knew something was off from the article.  Apparently it was that the writer never mentioned the cost of transferring title to the assets.

 

 

 

 

Posted in Gifting | Comments Off on Gifting Options

Increased Section 179

Posted by taxguru on May 26, 2007

The Section 179 expensing election is one of the most common topics on which I receive questions; so this is a bit of good news. 

As our imperial rulers in DC love to do when they pass laws to control our lives, they toss in a load of items unrelated to the main purpose of the bill.  The Iraq war funding bill that President Bush signed yesterday has its share of unrelated items affecting businesses.

Bad News: Increasing the minimum wage to screw up the natural supply and demand market forces for labor.

Good News: Increasing the 2007 limit for Section 179 from what was $112,000 to $125,000 and increasing the phase-out for this deduction from the previously COLA adjusted limit of $450,000 of newly acquired equipment to $500,000.

Here is the actual text from Page 179 of the 249 page law.

SEC. 8212. EXTENSION AND INCREASE OF EXPENSING FOR  SMALL BUSINESS.

(a) EXTENSION.—Subsections (b)(1), (b)(2), (b)(5), (c)(2), and (d)(1)(A)(ii) of section 179 (relating to election to expense certain depreciable business assets) are each amended by striking ‘‘2010’’ and inserting ‘‘2011’’.

(b) INCREASE IN LIMITATIONS.—Subsection (b) of section 179 is amended—

 (1) by striking ‘‘$100,000 in the case of taxable years beginning after 2002’’ in paragraph (1) and inserting ‘‘$125,000 in the case of taxable years beginning after 2006’’, and

(2) by striking ‘‘$400,000 in the case of taxable years beginning after 2002’’ in paragraph (2) and inserting ‘‘$500,000 in the case of taxable years beginning after 2006’’.

(c) INFLATION ADJUSTMENT.—Subparagraph (A) of section 179(b)(5) is amended—

  (1) by striking ‘‘2003’’ and inserting ‘‘2007’’,

 (2) by striking ‘‘$100,000 and $400,000’’ and inserting ‘‘$125,000 and $500,000’’, and

 (3) by striking ‘‘2002’’ in clause (ii) and inserting ‘‘2006’’.

 (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2006.

 

Joe Kristan has a good summary of these and other tax related changes in the new law on his blog.   

 

TaxCoach Software: Are you giving your clients what they really want?

 

Posted in 179 | Comments Off on Increased Section 179

Posted by taxguru on May 25, 2007

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Posted by taxguru on May 25, 2007

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Posted by taxguru on May 25, 2007

Whistleblower Law Scores Early Success – Rewarding tax cheat informants 15% to 30% of the amount recovered is a powerful motivator. Use Form 211 to turn in your exes (friends, spouses, employers, etc.).

 

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Be careful when choosing 1031 service

Posted by taxguru on May 25, 2007

I can’t help using the old cliche –  Penny Wise, Pound Foolish – to describe how so many supposedly intelligent people can risk literally millions of dollars in order to save a few hundred.

It’s no secret that my wife owns and operates a company to handle Section 1031 like kind exchanges for real estate investors.  She frequently mentions that potential clients try to get her to lower her fees based on lower rates being charged by newbies who don’t know what they are doing.  Of course, she is just like I am and refuses to participate in such a “whore’s market” and doesn’t work with anyone who doesn’t understand that quality comes with a price.

As these articles covered by Paul Caron indicate, cutting corners on a 1031 fee can end up costing much more in the long run, as several 1031 facilitators have filed bankruptcy while holding 151 million dollars of investor funds.  I wonder how many of those investors chose to use those companies based on lower fees than what reputable firms charged. They are each now looking at the very likely prospect of losing hundreds of thousands of dollars because they wanted to save a few hundred dollars.    

This reminds me of a similar situation when I owned an exchange company back in the Bay Area.  We were losing a lot of exchange business to a new company that wasn’t charging anything for its services, supposedly as a means of getting a foot-hold in the area’s real estate market.  The fact that they were operating out of a motel room should have been a dead tip-off to the end result.  The slime-balls amassed a few million dollars of investor funds and then skipped town.

I hate to sound cruel, but anyone who is willing to entrust his/her real estate equity with a stranger rather than someone who has been successfully handling 1031 exchanges for decades, just to save a few hundred dollars on the service fees, doesn’t have much chance of being considered a “sophisticated investor.”  Short-sighted fool would be the more appropriate description of such a person.  

1031 Tax Group files for Chapter 11

1031 Group bankruptcy a muddle

 

Firm files bankruptcy owing $151 million

 

  

 

 

Posted in 1031 | Comments Off on Be careful when choosing 1031 service

Posted by taxguru on May 23, 2007

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For the Realtors…

Posted by taxguru on May 22, 2007

Posted in comix, realty | Comments Off on For the Realtors…

Posted by taxguru on May 21, 2007

DEMS’ BIG TAX LIE – Not extending the soon to expire Bush tax cuts is exactly the same as enacting a humongous tax increase.

 

Capital Gains Taxes Aren’t for the ‘Kiddies’ – Interesting look at shifting tax burden to kids, who are probably in a lower tax bracket than the parents.  Also includes a reminder of the one year zero capital gains tax rate for small profits in 2008, a topic that has been coming up quite often in my discussions with clients contemplating sales of properties. 

 

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