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Archive for Property Tax

Construction Tax Planning: A Proactive Approach To Accelerated Depreciation Planning

Peter Scalise

A properly designed and implemented Construction Tax Planning engagement will proactively identify additional tax savings related to new and/or planned construction projects. It should be duly noted that a Construction Tax Planning engagement should not be confused with a Cost Segregation engagement as there are several noteworthy differences between a Cost Segregation Engagement and a Construction Tax Planning Engagement.

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Personal Property Tax Issues

Annette Nellen4

There is an interesting article in the San Jose Mercury News – “Silicon Valley’s stealthy, selfish war on taxes,” by Michelle Quinn (9/11/15).  She looks at some of the assessed values high tech firms have noted for their equipment, including $1.  She reports that some companies argue that the machine has no value to anyone else.  That seems odd.  But, it is a problem with a valuation tax, such as the property tax.

What is business personal property, such as equipment, worth each year?  Arguably, when purchased, it is worth what you paid for it, but it isn’t worth that much after that.  The valuation approach used does allow for adjustments down for subsequent years. The system also allows for lower values and appeals when necessary. Read more

Installment Sale – A Useful Tool To Minimize Taxes

Installment Sale-A Useful Tool To Minimize Taxes

Selling a property one has owned for a long period of time will frequently result in a large capital gain, and reporting all of the gain in one year will generally expose the gain to higher than normal capital gains rates and subject the gain to the 3.8% surtax on net investment income added by Obamacare.

Capital gains rates: Long-term capital gains can be taxed at 0%, 15%, or 20% depending upon the taxpayer’s regular tax bracket for the year. At the low end, if your regular tax bracket is 15% or less, the capital gains rate is zero. If your regular tax bracket is 25% to 35%, then the top capital gains rate is 15%. However, if your regular tax bracket is 39.6%, the capital gains rate is 20%. As you can see, larger gains push the taxpayer into higher capital gains rates. Read more

Busy Season Updates – Tangible Property Regulations And Affordable Care Act

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Well into the start of busy season, the IRS issued important guidance on some parts of the Affordable Care Act (ACA) and how small businesses can adopt the tangible property regulations (TPR).  I’ve got a summary of the ACA updates (and beyond) in a short article in the 3/12/15 AICPA Tax Insider – An update on Affordable Care Act busy season developments.

Here is my summary of the TPR items as well as a recent news release by the California Franchise Tax Board on conformity with TPR.

Policy Item: Both the ACA items (particularly the relief from the $100/employee/day penalty for health reimbursement arrangements (HRAs) that violate ACA provisions), and the TPR Read more

Church Wins Round In Court Over Property Tax Exemption

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In a recent court case, a New York court ruled that two churches closed by a Catholic Diocese remained exempt from property taxes. In this situation, the diocese had announced plans to permanently close the churches and issued canonical “decrees of suppression.” This action has the effect of terminating the diocese. The property was transferred to other parishes. The local tax assessor informed the diocese that the churches were being placed on the tax rolls, removing the property tax exemption from the two churches.

The diocese asked the court to reinstate the tax-exempt status of both churches, citing the fact that the properties were being used on occasion for religious purposes including monthly religious services. In addition, the diocese stated that the churches were not used for any other purpose. The assessor countered that the properties were not Read more

E.U. NEWS – The Corporation Tax Bill (Northern Ireland)

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The Corporation Tax (Northern Ireland) Bill was published on 8th January 2015. The British Government hopes the Bill will be passed before the UK General Election in May.

The Bill, if passed, would allow Northern Ireland to apply its new Corporation Tax rate on most trading profits from April 2015.

The current rate paid by companies in Northern Ireland is 21% while the rate in the Republic of Ireland is 12½%.

According to the UK Government Press Release “if the rate was lowered, around 34,000 businesses in Northern Ireland would stand to benefit including 26,500 SMEs.” Read more

Filing Season And Rental Activities

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A regular area for Tax Court litigation for the past few years involves individuals with a few rental properties deducting the losses from them under the theory they are real estate professionals (using a special rule of section 469(c)(7)). These individuals usually have jobs outside of the real estate profession and do not devote more hours than in their other employment to the rentals. They clearly do not qualify for the special rule. Yet, they claim the loss (rate her than carrying it forward) and then after losing during the Internal Revenue Service audit, they go to Tax Court and lose. Why? A better way to challenge would be to try to get Congress to change the law. Perhaps trying to convince Congress to increase the income limit so they could use up to $25,000 of the loss currently (under a modified section 469(i)). Read more

Condemnations of Business and Income Producing Property

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This article will explain the tax rules for determining a gain or loss from condemnations, how much of the loss is deductible or amount of gain taxable, and in what tax year, deferring gains from condemnations, and basis of replacement property when a gain is deferred. Also, an important aspect of replacement property is what qualifies as like-kind property to be able to defer the gain.

A condemnation is the threat or imminence of or the actual taking of property without the owner’s consent for public domain by a governmental agency through its power of eminent domain. Depending on the amount received and the adjusted basis of the property, a gain or loss may result. Part or all of a gain may be recognized and/or deferred. Read more

Tax Implications of Installment Sales

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It seems more and more taxpayers are finding themselves compelled to engage in a structured installment sale of closely held business assets or rental real estate and I couldn’t help but notice that there are some common misconceptions about the associated tax implications, particularly if ‘related parties’ are involved in a transaction. So this is what I am telling people:

• Report installment sales on IRS Form 6252
• Report interest from installment sales on Schedule B
• Report capital gains from installment sales on Schedule D
• For more details refer to IRS Publication 537 or IRC 453 Read more

Basis and Depreciation: A Review for Tax Professionals Part II

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Once you have determined the type of property/asset you are dealing with you must determine use. There are four use classifications of property:

1. Personal-use property (not the same as personal type) is owned for personal use and enjoyment or living purposes. Items such as a primary residence, vehicle, clothing, household goods, recreational items, pets, etc, all are considered personal use property.

2. Investment-use property is property owned with a primary objective of increasing in value even though some current income may be generated. This classification includes things like land, collectibles like art or coins, capital stocks, bonds, and buildings not used in active rental. Read more

Basis And Depreciation: A Review For Tax Professionals – Part I

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Depreciation is one of the standards of tax preparation that every tax professional must have a firm grip on to do right by their client. In order to understand depreciation you must first understand basis. Over the next several posts in this series we will review basis and depreciation, discuss the relationships of them to each other, and review old, new and expiring depreciation provisions.

Basis is generally defined as the taxpayer’s investment in the asset and depreciation is defined as the allocation of an asset’s cost over a period of time that is in line with the useful life of the asset. This allows the recovery of normal wear and tear on an asset throughout it’s useful life. Read more

Sales of Business Assets

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Business assets are not capital assets but the sale my result in long-term capital gain if the asset has been held for more than one year. Under Code Section 1231, the net gain from sale of all Section 1231 assets is long-term capital gain, but there are two are two exceptions for depreciable property. (1) For personal property, under Section 1245, gain is ordinary income to the extent of any depreciation allowed or allowable (depreciation recapture). Allowable means that if the taxpayer could have taken depreciation on the asset but did not do so, then this amount must reduce the basis of the asset and is considered as ordinary income when the property is sold for a gain. (2) Under Section 1250, real property depreciated under an accelerated method is also treated as ordinary income. The amount of recapture depends on when the asset was placed in service and what depreciation method Read more

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