Posted by taxguru on January 10, 2007
I just received an email from the CPE provider ClientWhys announcing that they are offering a free download of their course materials on tax law changes affecting 2006 and later years. I downloaded it and checked it out. It’s a 39 page pdf file, including their test questions; but it is a handy concise reference of newly effective changes.
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Posted by taxguru on January 9, 2007
Here is a link to the historical table of the bottom and top federal income tax rates from 1913 through 2000, as discussed on today’s Rush Limbaugh show. Interesting to see that the original top rate (7%) is lower than today’s bottom rate (10%).
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Posted by taxguru on January 9, 2007
Q:
Subject: Pregnancy and Section 121
Dear Kerry,
I was just wondering if you had posted any opinion about the decision of the IRS to treat Pregnancy as “Unforeseen Circumstance,” Permitting Exclusion of Gain on Sale of Home Owned Less than Two Years Under § 121. I would be interested in reading your opinion on-line or on your blog. Please let me know where / when you post.Thanks,
A:
I didn’t comment on that particular ruling because it was covered in several other tax blogs, as well as the fact that it was not in the least unexpected. I don’t have time to search for the postings, but I can recall having posted at least a few Q & As where I had advised that a pregnancy would qualify a homeowner to use the pro-rated tax free exclusion.
You have a good point that in these rare occasions when IRS actually demonstrates uncharacteristic common sense, it is something to be pointed out.
This ruling does also add a new strategy to the tax saving repertoire that desperate people may decide to use; intentional pregnancies to justify selling a home before the two year time period. That would be interesting to see an IRS auditor accuse a taxpayer of “tax motivated baby making.”
Thanks for writing.
Kerry Kerstetter
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Posted by taxguru on January 9, 2007
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Posted by taxguru on January 8, 2007
Be careful. A parent’s definition of a dependent may be different than the IRS’s.
(Click on image for full size)
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Posted by taxguru on January 6, 2007
Q:
Subject: Tax QuestionHi Kerry –I was wondering if you could help me with a residence tax question. I currently live in a Primary Residence in MI, and have a condo in AZ that I am renting out. If I sell the house in MI and move into the condo after the current renters lease is up, and live in the condo for 2 years, can I avoid capital gains? It is currently a rental property for me. If not, do you have any idea how I could avoid capital gains on the condo?Thanks,
A:
Ever since the current law regarding residence sales was enacted in May 1997, this has been a very common strategy; to convert rental homes into primary residences and sell them tax free after two years, again and again. I used to call it the “conversion game.” Others have called it “serial home selling.”
This strategy is still available today, except in the case of rental homes that had been acquired as replacement property for a 1031 exchange. As I explained in my blog, you need to have owned the home for at least five years in order to use the Section 121 tax fee exclusion, in addition to meeting the two year residency test.
Most of these issues are explained on my website.
As always, before implementing any tax saving strategy such as you are proposing, you must consult with an experienced tax professional to ensure that you do everything properly and don’t shoot yourself in the foot.
Good luck.
Kerry Kerstetter
Posted in 1031 | Comments Off on Tax free sales of rental homes
Posted by taxguru on January 6, 2007
Q-1:
Subject: QuickenI googled a question that I had to do with categorizing multiple business income/expense transactions in the same file without having to make subcategories galore. Your site came up and I want to thank you for your tips that helped me sort out these issues. For some reason I never thought of using classes for that.
A-1:
I’m glad you found that tip useful. I’m actually amazed at how many people still overlook the ability of Classes in Quicken and QuickBooks to easily handle several different businesses in one data file.
Good luck.
Kerry Kerstetter
Q-2:
Thanks for your response. I do have one related question.
Because we provide childcare, I need to send a report to each client at the end of the year and have used classes to separate them. If I isolate the different business accounts with classes, the Deposits I record will not appear because the transactions are split in classes for each client (Income:Private Clients/name) under each deposit. Is it suggested to record deposits in a separate account then record the total deposit again in the business account applied to, or do you know of another way?
Thanks.
A-2:
It shouldn’t be necessary to double enter anything ion order to be able to produce those reports. I used to print those out with Quicken with no problem.
Unfortunately, it has been so long since I’ve done anything with Quicken files except covert them to QuickBooks that I am too rusty on the detailed steps to be able to explain how to produce your desired reports.
This also brings up the fact that you would be better off upgrading to QuickBooks for the reasons I laid out in this article a long time ago. You wouldn’t lose any of your data and it would allow you a number of different ways to produce the detailed client/customer reports you are having problems with in Quicken.
Good luck. I’m sorry I couldn’t be more help.
Kerry Kerstetter
Posted in QB | Comments Off on Working With Quicken
Posted by taxguru on January 6, 2007
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Posted by taxguru on January 5, 2007
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Tax Guru - Ker$tetter Letter 