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The September 2010 newsletter focusing on tax issues for the homeowner and real estate investor, by certified public accountants in California.
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Michael Gray, CPA's

Real Estate Tax Letter

September 8, 2010

© 2010 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 is a major due date for extended income tax returns. May we help?

September 15, 2010 is the federal extended due date for calendar year corporations, S corporations, partnerships, trusts and estates. Only about one week to go to timely file these returns. To make an appointment for our firm to help with your return, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday from 9 a.m. to 5 p.m. Pacific Time.

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Third federal estimated tax payment is due September 15.

The third federal estimated tax payment is due September 15. Some taxpayers are basing their 2010 estimated tax payments on this year’s income and deductions, and should get the information to their tax preparer right away to prepare the payment voucher.

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Where is my third quarter California estimated tax voucher?

For 2010, California has “front loaded” its estimated tax payments for individuals. 30% was due in April and 40% in June, with no payment in September and the remaining payment in January 2011. The only reason to make an estimated tax payment in September for California is as a “catch up” payment.

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October 15 is the extended due date for individual income tax returns.

Sneaked up on you again, didn’t it? The extended due date for 2009 individual income tax returns is less than a month and a half away. Also, I am planning on being out of town the week after October 8, so if you want our help finishing your return, please send the information now. To make an appointment for us to prepare your return, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday from 9 a.m. to 5 p.m. Pacific Time.

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Michael Gray speaks on family partnerships.

Michael Gray, CPA will give “meeting before the meeting” presentations at the San Jose Real Estate Investor’s Association (SJREI) meetings at 6:15 p.m. on Wednesday and Thursday, October 6 and 7. His topic is, “What the IRS doesn’t want you to know about Family Limited Partnerships and LLCs”. The presentations will be at the Hyatt Place Dublin and the Biltmore Hotel in Santa Clara. The public is welcome, but there is a $25 fee for nonmembers to attend. You will be able to register at the SJREI web site, www.sjrei.net, or call 408-264-3198.

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Related party exchange fails.

The 11th Circuit Court of Appeals affirmed a decision by the U.S. Tax Court that an exchange between a corporation and a related limited liability company via a qualified intermediary didn’t qualify as a tax-deferred Section 1031 exchange because the corporation wasn’t able to prove that tax avoidance was not the principal purpose of the exchange. The exchange resulted in a reduction of taxable gain and a lower applicable tax rate on the gain. (Corporations have a maximum 34% federal tax rate for gains, but the members of the LLC have a maximum 15% federal tax rate for gains.)

The corporation and LLC were both owned by members of the same family.

(Ocmulgee Fields, Inc. v. Commissioner, CA-11, 2010-2 USTC ¶ 50,565 (August 19, 2010.)

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Valuation disputed for donation of easement.

Whitehouse Hotel Limited Partnership acquired a parcel of property as a location for a Ritz Carlton hotel. It claimed a charitable qualified conservation contribution deduction for an easement to preserve an historic façade on the building. The IRS challenged the valuation of the easement and was upheld by the Tax Court.

The Fifth Circuit has vacated the Tax Court’s decision and remanded the case for rehearing.

The taxpayer questioned the credentials of the IRS’s expert witness and raised additional issues about the valuation of the easement, including its effect on another property that it owned adjacent to the hotel because of building height restrictions included in the easement.

(Whitehouse Hotel Limited Partnership v. Commissioner, 2010-2 USTC ¶ 50,564 (August 19, 2010.))

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Financial Insider Weekly broadcast schedule for September and October.

Financial Insider Weekly is broadcast in San Jose and Campbell on Wednesdays at 7:00 p.m., Pacific Time on Comcast channel 15. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for the rest of September and October:

September 8: Mark Ericson, Attorney, “Divorce – California style – the basics”
September 15: Craig Martin, CFP, “Investing in Turbulent Times”
September 22: Craig Martin, CFP, “The role of the fee-only financial planner”
September 29: William Mahan, Attorney, “Short Sales and Foreclosures – Mechanics”
October 6: William Mahan, Attorney, “Short Sales and Foreclosures – Tax Considerations”
October 13: Bettie Baker Marshall, Attorney, “Caring for incapacitated relatives (Elder Law)”
October 20: Richard Lambie, Professional Fiduciary, “The Role of the Professional Fiduciary”
October 27: Mark Erickson, Attorney, “California divorce issues”

Financial Insider Weekly is also broadcast as follows:

  • Sunday at 5 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
  • Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
  • Thursday at 5:30 p.m. on Comcast channel 27 in Santa Cruz County and Charter Communications channel 73 in Capitola and Watsonville
  • Thursday at 7 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
  • Thursday at 10 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
  • Friday at 4 p.m. on cable channel 15 in Cupertino, Los Altos and Mountain View
  • Friday at 4:30 p.m. on Comcast channel 15 in Los Gatos
  • Friday at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, "public access TV".

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, 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.

Question

We bought a primary residence house A in 1999 for $335,000, with a mortgage of $268,000.

The $268,000 mortgage was paid off in 2005.

In 2009, we borrowed $400,000 as a mortgage against house A to buy our new primary residence, house B. We had two loans, $400,000 on house A and $410,000 on house B. The reason was the $400,000 was a conforming loan with a much better interest rate than a jumbo loan for $810,000.

When we moved to house B, house A was converted to a rental property.

Is the interest for the $400,000 loan on house A tax deductible?

Answer

No.

If you refinance house B to wrap in the financing now secured by house A, the interest on the new loan will be tax deductible.

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.

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Follow me on Twitter!

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.

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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.

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Check out my blog.

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

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

 

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Michael Gray, CPA
2190 Stokes St., Suite 102
San Jose, California 95128-4512
(408) 918-3162
Fax (408) 998-2766
email: mgray@taxtrimmers.com
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