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Real Estate Tax Letter!


Michael Gray, CPA's Real Estate Tax Letter

June 9, 2017

© 2017 by Michael C. Gray
ISSN 1930-0387

A monthly report focusing on tax issues for the homeowner and real estate investor.

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"Summer" season begins.

With Memorial Day passing, summer has unofficially begun. For those of you on extension, it's time to get the final documents to your tax return preparer to finish your tax returns and avoid a last minute "crunch." This is also a good time for tax planning, including looking at how 2017 is developing and taking care of matters that we put off, such as estate planning. To make an appointment, call Dawn Siemer on Mondays, Wednesdays or Fridays from 9 a.m. to 5 p.m. at 408-918-3162.

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Michael Gray's schedule.

Michael Gray will be out of the office from June 14 through 16, and won't be able to respond to emails or telephone calls on those days. He will return on Monday, June 19. Dawn Siemer will be out on vacation from June 26 to July 7.

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June 15 is an estimated tax due date.

The second estimated tax payment for most individuals and calendar year corporations and fiduciaries is June 15.

For individuals, federal estimated tax payments (for estimated tax exceeding withholding) can be based on 110% of 2016 tax on your income tax return if your adjusted gross income exceeds $150,000. Alternatively, you can make payments based on your income and deductions for 2017.

The California payment is 40% of estimated tax for the year. Like federal estimated tax payments, California payments can be 110% of 2016 tax, unless your adjusted gross income is $1 million or more. In that case, your estimated tax payments should be based on your actual income and deductions for 2017.

If you want our help computing your second quarter estimated tax payments, call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment for a consultation.

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Estimated fee payment due June 15 for some calendar year LLCs.

California LLCs pay two items to the Franchise Tax Board: an annual tax of $800 and an annual fee based on the gross receipts of the LLC. The estimated annual fee is paid with Form 3536 by June 15 of the taxable year for calendar year LLCs. There is no fee when the gross receipts for the LLC are less than $250,000. The estimated fee can be based on last year's income tax return when it is for twelve months.

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Rental losses disallowed because of personal use of real estate.

The Tax Court upheld the IRS in finding the owner of a bed and breakfast failed to substantiate his repair and maintenance activities for the property.

The taxpayer claimed that his personal use of the property related to repair and maintenance work that he was performing while he stayed there. The court wasn't persuaded. Since he spent more than 14 days at the property for personal use (26 days for 2010 and 33 days for 2011), the property was considered to be personal use property, resulting in disallowing the deduction of losses for the property.

This case is a reminder of the "vacation home" rules. Vacation use of a property, including use by family and friends other than for a fair market value rent, should be limited or avoided.

(Cooke v. Commissioner, TC Memo. 2017-074, May 1, 2017.)

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Mortgage interest deduction allowed for "equitable owner."

An individual lived and maintained a residence. Although he wasn't on the title for the property, he was a coborrower on the mortgage loan, and made the monthly mortgage payments.

The taxpayer ruled against the IRS and in favor of this taxpayer that, as an equitable owner of the property under Maryland law, he could deduct the mortgage interest that he paid.

(Wainwright v. Commissioner, TC Memo 2017-070, April 25, 2017.)

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Cost of contents excluded from basis for sale of residence.

The State Board of Equalization upheld the California Franchise Tax Boad in disallowing the cost of the contents of a home from the tax basis (cost for computing gain or loss). The taxpayers sold the house and contents for $7,150,000. A sale document set aside $400,000 from the purchase price as "paid for furniture."

The taxpayers reported $6,750,000 as the sale proceeds and included the cost of furnishings in the cost of the real estate - clearly in error.

(Appeal of Handleman (dec'd) and Callahan, Cal. St. Bd. Of Equal., Case No 609157, January 21, 2015.)

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Live presentation by Michael Gray for tax professionals, lawyers and financial advisors.

Michael Gray, CPA will give a lunchtime presentation, "Estate Planning without an estate tax", on June 20, 2017 for the Estate & Trusts discussion group, Silicon Valley San Jose Chapter, California Society of Certified Public Accountants (CalCPA.) Locatioin is Abbott, Stringham & Lynch, 1530 Meridian Ave., San Jose. This is an introductory-level presentation focusing on providing for the support of the family and key planning issues. The investment, including lunch, is $20 for CalCPA members and $30 for nonmembers. You can register here or call Susie Riffel at 650-522-3168.

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For our readers who are CPAs.

I'm developing an initiative just for CPAs in public practice and need your contact information. Please send an email to or call Dawn Siemer on Mondays, Wednesdays or Fridays at 408-918-3162. Just say "I'm a CPA in public accounting who reads your newsletter" and give your name, address, telephone number and email address. Thanks!

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Please share your good experiences with Michael Gray, CPA.

As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm<. Some of the sites where you can share your experiences include and

We use Angie's List to assess whether we're doing a good job keeping valued customers like you happy. Please in order to grade our quality of work and customer service.

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Financial Insider Weekly broadcast schedule for June and July.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at

Here are the scheduled interviews for May and June:

June 2 and 9, Michael Jones, CPA, Thompson Jones, LLP, "Beneficiary designations for retirement accounts"
June 16, Peggy Martin, CLU, ChFC, The Family Wealth Consulting Group, "Long-term care insurance"
June 23 and 30, Peggy Martin, CLU, ChFC, The Family Wealth Consulting Group, "Life insurance basics"
July 7 and 14, Scott Haislet, CPA and attorney at law, "Section 1031 exchanges"
July 21, Scott Haislet, CPA and attorney at law, "Real estate reassessment change of ownership"
July 28, Scott Haislet, CPA and attorney at law, "Sale of a principal residence"

Financial Insider Weekly is also broadcast as follows:

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site,, and click on "Past Episodes."

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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Questions and Answers

Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

Dear readers:

Many of your questions relate to the sale of a principal residence. We have an article at our web site, "Could your residence be the ultimate tax shelter?" ( where you should be able to find the answers to most of these questions.

Many other questions relate to short sales and foreclosures. See our article on that subject at

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Follow me on Twitter, Facebook, LinkedIn and Google+!

If you enjoy Twitter, please follow me at I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.

you can also follow me on other social media sites, Facebook, LinkedIn, and Google+.

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A monthly newsletter focusing on tax issues for the homeowner and real estate investor, by certified public accountants in California.
Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766