Q:

Subject: Self-Directed IRA

Hi Kerry,

I came across your blog as I was researching self-directed IRA facilitators. The company I’m taking a look at is Guidant Financial and I’m wondering if you have an opinion on how they compare to Benetrends or SD Cooper?

Thank you,

A:

I’m sorry but I don’t know anything about that company.

I’m sure a Google search would turn up complaints, if there any unhappy customers out there.

Good luck.

Kerry Kerstetter

Q:

Subject: copy of 2004 federal income taxes

 

Dear Kerry,  I would like to know if there is any possible way of me getting a copy of my 2004 Federal income taxes. I need these documents for a court case and I can not find my copies. I would appreciate if you could email me and tell me any information that may help me to obtain these records.   Thanks in advance for any advice that you may be able to provide.                

A:

I’m assuming you didn’t use a professional preparer for your 2004 1040, because you could always get a copy from him/her.

IRS has two forms that can be used to get either a transcript of the numbers from your tax return (4506-T) or an actual copy of the return (4506).  The transcript is free, while the copy is $39.

You can download these forms from the IRS website:

          4506–T

          4506

Good luck.

Kerry Kerstetter

From A Reader:

Subject: WSJ’s bad advice

Kerry,

You posted a link to a WSJ article basically telling people not to buy a house in most instances.

Much of what it said was just wrong.

For one thing, even if you assume 4% growth, we’re talking about 4% of the total value.

So, if you put 10% down, in a year you’ve had a 40% roi (less the interest paid during that year).  I have yet to see that in any of my stocks.

The author also completely missed the aspect of control.  Homeowners don’t have to wait for the super to fix something and if they’ve got a fixed rate mortgage they don’t have to worry about rents raising (taxes, but not rent).  Homeowners will also never get a note saying “I don’t like you anymore.  You have 60 days to leave.”

You can also refinance to take advantage of lower rates.

 

Is home ownership a free ticket to cushy retirement?  Of course not.  But it’s also not the doom of wasted opportunity the author paints (even the author admits you can walk away with a quarter million in cash if you move from a high market to a low one).

My Reply:

Those are very good points. 

The principle of leverage in an appreciating market has always been the main reason I have always been a big fan of real estate investments.

The issue of control and not being at the mercy of a landlord is also very near and dear to me, and why I have never felt comfortable renting a home.

Thanks for writing. 

Kerry

Q:

Subject: Older client sells home and retains right to live in it until death or abandoned

I have an older client who sold her home to her neighbor below fair market value because she retained the right to live in it rent free until she died or abandoned the property (nursing home for example).  We are now trying to see if she can take the $250K exclusion on the sale.  It was arms length in that the buyer paid less and can’t take possession until a future unknown event.  The neighbor went through a regular escrow. 

My feeling is that the “discount” was an arms length transaction with a lot of give and take before a price and terms were agreed on.  The tax person is saying that since she did not sell her entire interest (retained a right to live there) that the entire gain is capital gain.

Thoughts?  I have been doing research and have not found anything on point.  Most retained life interest data refers to 706 preparation.

Mahalo,

A:

As long as her neighbor wasn’t related to her, it seems that she can utilize the Section 121 exclusion, as described in IRS’s own Pub 523.   

Sale of remainder interest.   Subject to the other rules in this publication, you can choose to exclude gain from the sale of a remainder interest in your home. If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately.

Exception for sales to related persons.   You cannot exclude gain from the sale of a remainder interest in your home to a related person. Related persons include your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.). Related persons also include certain corporations, partnerships, trusts, and exempt organizations.”

The sale that you described sounds exactly like the normal definition of a remainder interest, so it should be eligible for the exclusion, as long as the neighbor wasn’t a relative.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

Thank you for your quick reply. 

Thanks Again

Q-1:

Subject: Fiduciary – Estates & Trusts

 

If a trust return 1041 has a total   of only $10,000.00 in taxable interest for the year, can the trust pass on a proportion of the tax obligation via k-1 to the beneficiaries, and show the remaining income for that same year on the 1041?  For example, show $8000.00 income on the trust return and show $2000.00 on the k-1’s to the beneficiaries.

 

thanks

A-1:

The governing documents for the trust should either specify how the income is to be allocated and distributed or at least empower a designated person (usually the trustee) to make those decisions during the lifetime of the trust. 

Kerry Kerstetter

Q-2:

guess I was more concerned if the IRS would allow part of the income each year to be listed on the trust return and the rest of the income for that same year, and its tax obligation, be put on k-1’s to the beneficiaries

thanks for your comments

A-2:

You can technically enter the income any way you want in regard to how much is passed through via K-1s and how much is taxed at the trust level.  However, if IRS were to ever question the methodology of the allocations, via a direct audit of the 1041 or more likely, a 1040 audit that reaches back to the 1041, you would have to provide the auditor with documentation (the trust’s governing documents) that the allocation was properly authorized and not just done arbitrarily.  If there is no such documentation, the auditor will be able to reclassify the income allocation to whichever method results in the highest taxes for the government, plus penalties and interest.

I hope this clarifies how this matter should be addressed.

Good luck.

Kerry Kerstetter

Follow-Up:

thanks you are very good at your work.  best to you

Republicans Warn of Tax Hikes Ahead – With so many of Bush’s tax cuts expiring in the next few years, we are looking at some huge tax increases just from our rulers continuing to sit on their hands and failing to act on extending them; or better still, making them permanent. Hillary is literally chomping at the bit to be in command and responsible for even bigger tax hikes than the humongous ones the Clinton-Gore team retroactively forced on us back in 1993.