Subscribe to
Michael Gray, CPA's
Real Estate Tax Letter!

We respect your email privacy

Michael Gray, CPA's Real Estate Tax Letter

September 7, 2018

© 2018 by Michael C. Gray
ISSN 1930-0387

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

Table of Contents

September 15 due dates.

The due date for extended income tax returns for calendar-year partnerships and S corporations is September 15.

Federal estimated tax payments for individuals are also due September 15. There is no California estimated tax payment due September 15 because estimated payments for April and June are "front loaded."

The federal estimated tax payment can be based on the income tax reported on the 2017 federal income tax return. If the 2017 federal adjusted gross income was more than $150,000 (or $75,000 if married filing separately), the payment can be based on 110% of the income tax on the 2017 federal income tax return. Alternatively, the payment can be based on 90% of the actual tax for 2018. Although the tax payment is 25% of the annual tax liability, the computations can be made using income and deductions through August 31. (The computations for the tax law changes for 2018 are so complex that I recommend using the "protected estimate" based on 2017 tax approach.)

With the tax law changes for 2018, you might want to get professional help with your estimated tax payments this year.

Return to Table of Contents

Trusts and estate tax returns due October 1.

The due date for 2017 calendar-year trusts and estates for which timely extensions were filed is October 1, 2018.

Return to Table of Contents

Individual and C corporation tax returns due October 15.

The due date for 2017 individuals and calendar year corporations for which timely extensions were filed is October 15, 2018.

Return to Table of Contents

It's time for cleanup and extensions.

Maybe you have an issue for which you would like a second look on the income tax returns you just filed. Maybe you have extended income tax returns that you need to have prepared. Or maybe you have some planning issues for which need advice. To make an appointment, call Thi Nguyen, CPA at 408-286-7400, extension 206.

Return to Table of Contents

Check your 2018 withholding.

With the tax law changes for 2018, many taxpayers will find their payroll tax withholding isn't enough to protect them from penalties for underpayment of estimated tax. I recommend that you review your withholding with your tax advisor now to consider whether your should increase your federal tax withholding. The current interest rate for computing the penalty for underpayment of estimated tax is 5%. Also, since personal exemptions have been repealed for federal tax reporting but not for state tax reporting, you should probably give your employer separate state income tax withholding instructions. The California form is DE-4.

Return to Table of Contents

Special pre-publication offer for update of Secrets of Tax Planning for Employee Stock Options, 2018 Edition.

We have been hard at work getting our books updated for the Tax Cuts and Jobs Act of 2017, enacted last December and mostly effective at the beginning of 2018. We are now accepting preorders for Secrets of Tax Planning for Employee Stock Options, 2018 Edition from our subscribers for half price through September 30, 2018. The book has just been submitted to the printer, so it should be shipped during the last half of September.

The half-price investment for the book is $149.99 plus $20.00 shipping and handling and $15.72 California sales tax for California residents. Here are links for details, or call in your order to Dawn Siemer weekdays at 408-918-3162. Follow the links to buy online https://www.siliconvalleypublishingcompany.com/products/secrets-of-tax-planning-for-employee-stock-options-2014-edition using the coupon code SESO2018.

Return to Table of Contents

CPAs! Want help with your promotions, newsletter, online articles, or books?

Michael Gray, CPA is available for promotional and content writing assignments. In addition, some of our publications and articles are available for licensing (use for a fee). Want more information? Call Michael Gray weekdays at 408-918-3161.

Return to Table of Contents

Do you love travel?

I have created a Facebook travel group, called Travel Adventures, for members to share travel photos, experiences and tips. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/207423476536726/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

Return to Table of Contents

Do you love Disney?

I have created a Facebook group, called Disney Magic, for members to share Disney photos, experiences and tips. I am also posting developments for Disney films, television shows, and amusement parks there. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/2006739209578437/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

Return to Table of Contents

Related party Section 1031 exchange wasn't "spoiled" by subsequent nonrecognition transactions.

A taxpayer made a tax-deferred Section 1031 exchange where the taxpayer received two real estate parcels from a related corporation. Less than two years after the exchange, the taxpayer exchanged one of the parcels in another Section 1031 exchange, receiving no cash or other disqualified property, and contributed the second parcel to a partnership in a nonrecognition transaction.

The IRS ruled that the subsequent transactions did not have as a principal purpose the avoidance of federal income tax. Therefore, the original exchange wasn't disturbed by the subsequent transactions and the subsequent transactions also weren't taxable.

(This is what tax advisors call a "comfort ruling." The taxpayer received reassurance that the transaction weren't subject to income tax and avoided a possible audit issue. It's worthwhile to do this for very significant transactions.)

(IRS Letter Ruling 201834010, Release Date August 24, 2018.)

Return to Table of Contents

Taxpayer denied worthlessness loss for partnership interests.

The Tax Court upheld the IRS in disallowing losses for partnership interests that a taxpayer claimed were worthless.

Although the partnerships reported losses, the taxpayer didn't submit any evidence about the values of the partnerships or the underlying properties to substantiate they were worthless.

The taxpayer claimed the partnerships were worthless as of December 31, 2008, but the partnerships said they did still have some value, although some were financially troubled.

The Tax Court said there was no "closed and completed transaction" supporting deductions for losses.

As an alternative, the taxpayer could have considered selling or abandoning his partnership interests.

(Forlizzo v. Commissioner, TC Memorandum 2018-137, August 27, 2018.)

Return to Table of Contents

Long term lease didn't qualify for a charitable contribution of a façade easement.

The Tax Court upheld the IRS in denying a charitable contribution of a façade easement. The taxpayer, a partnership, didn't own the property, so it didn't have a qualified real property interest. The long-term lease was a contractual right that didn't qualify for the deduction.

(Harbor Lofts Associates v. Commissioner, 151 T.C. No. 3, August 27, 2018.)

Return to Table of Contents

IRS blocks state workarounds for federal deduction limit.

California, New York and other states have been passing or proposing laws for taxpayers in those states to avoid the $10,000 annual federal itemized deduction limit for state and local taxes (including real estate taxes). The states have proposed qualifying payments as charitable contributions with a state tax offset.

Under the proposed regulations, the state tax credit expected in exchange for a charitable contribution is a "quid pro quo" (benefit received in exchange) disqualifying the deduction for that amount.

There is a di minimus rule in the proposed regulation allowing a taxpayer to receive a state tax credit for up to 15% of the donation.

The regulations are proposed to be effective for charitable contributions made after August 27, 2018.

The regulations also apply to state tax laws that were in effect before the Tax Cuts and Jobs Act of 2017 was enacted, so it eliminates the tax benefit of California's College Access Tax Credit (50% of donation amount) for charitable contributions made after August 27, 2018.

(REG-112176-18, August 23, 2018.)

Return to Table of Contents

Real Estate Developer denied deduction for his yacht.

The Tax Court upheld the IRS in disallowing trade or business deductions of a real estate developer for his yacht. The taxpayer claimed he bought the yacht for "relationship marketing" with prospective customers. The expenses were buried in such categories as "dues and subscriptions." The Tax Court said the business use of the yacht wasn't substantiated. Fortunately for the taxpayer, the Tax Court ruled against the IRS in applying accuracy-related penalties.

(Becnel v. Commissioner, Tax Court Memorandum 2018-120, August 2, 2018.)

Return to Table of Contents

Proposed regulations issued for bonus depeciation.

The IRS has issued proposed regulations for bonus depreciation, incorporating changes enacted in the Tax Cuts and Jobs Act of 2017. New rules for "qualified improvement property" and used property are included. Taxpayers may rely on the proposed regulations until final regulations are issued.

(REG-104397-18, August 8, 2018.)

Return to Table of Contents

IRS Voluntary Annual Filing Season Program upheld.

The D.C. Circuit Court of Appeals reversed a District Court ruling and ruled against the American Institute of Certified Public Accountants (AICPA) and found the IRS Annual Filing Season Program does not violate the Administrative Procedure Act. The Circuit Court first found the AICPA has standing to contest the program. The AICPA claimed the IRS didn't have the authority to regulate tax return preparers who aren't enrolled to practice before the IRS, like Entrolled Agents are.

The Circuit Court said the program merely provided unenrolled preparers the opportunity to participate and satisfy the Program requirements.

(AICPA v. IRS, D.C. Circuit No. 16-5256, August 14, 2018.)

Return to Table of Contents

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 yelp.com, siliconvalley.citysearch.com, and Google+.

Return to Table of Contents

Financial Insider Weekly past episodes

After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.

Return to Table of Contents


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?" (www.realestateinvestingtax.com/residence.shtml) 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 www.realestateinvestingtax.com/shortsale.shtml.

Return to Table of Contents


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

If you enjoy Twitter, please follow me at www.twitter.com/michaelgraycpa. 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+.

Return to Table of Contents

If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

Return to Table of Contents

Check out my blog.

I have also started a blog at michaelgraycpa.com. Check it out!

Return to Table of Contents

Do you know about our other newsletters?

For general tax developments, tax planning ideas, business development ideas and book reviews, subscribe to Michael Gray, CPA's Tax & Business Insight at taxtrimmers.com/subscribe2.shtml.

Have employee stock options? Subscribe to our free newsletter, Michael Gray, CPA's Option Alert! To learn more, visit stockoptionadvisors.com/subscribe.shtml.

Return to Table of Contents

Subscribe to the Real Estate Tax Letter

Did you find this newsletter helpful? If so, subscribe now!

Return to Table of Contents

Looking for more free real estate tax advice? Visit our real estate investing tax site at Realestateinvestingtax.com.