Michael Gray, CPA's

Real Estate Tax Letter

August 16, 2013

© 2013 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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Extension season is here.

If you would like us to prepare your extended 2012 income tax returns, please call Dawn Siemer Mondays, Wednesdays or Fridays from 9 a.m. to 5 p.m. at (408) 918-3162.

We can also prepare amended income tax returns to clean up tax returns that were previously filed.

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Third quarter estimated tax payment date approaches.

The federal estimated tax payment for the third quarter is due September 16. If you are making your payments based on this year’s tax information, it’s time to get in touch with your tax advisor. California doesn’t have a third quarter payment for individuals, because the payments for the first two quarters are "front loaded."

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Now is the time for tax planning.

With many tax changes this year, especially for taxpayers with high incomes or high net worths, now is a good time for income and estate tax planning. To make an appointment, call Dawn Siemer Mondays, Wednesdays or Fridays from 9 a.m. to 5 p.m.

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Donation deduction for conservation easement disallowed.

The Tax Court upheld the IRS’s disallowance of a $10.5 million deduction for a conservation easement. The deduction was passed through by an LLC to a member. The LLC had executed a conservation agreement with a nonprofit land conservancy. Under the agreement, the parties were permitted to substitute what property would be subject to the conservation easement.

Under Internal Revenue Code Section 170(h)(2)(C), a deductible conservation easement must be granted in perpetuity.

(Belk v. Commissioner, TC Memo. 2013-154.)

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Another taxpayer fails tests for real estate professional status.

A taxpayer claimed to be exempt from the passive activity loss limitations because he was a real estate professional.

The Tax Court upheld the IRS’s disallowance of the deductions because he failed to meet the requirements to qualify as a real estate professional.

The taxpayer had a real estate rental business with seven properties. The taxpayer used management companies for each property. He also owned two other businesses. One processed mortgage loan applications and the other sold and distributed a health drink.

In order to qualify as a real estate professional, (1) more than half of the taxpayers services provided during the year must be performed in real estate property trades or businesses in which the taxpayer materially participates and (2) the taxpayer must perform more than 750 hours of service during the year in real property trades or businesses in which the taxpayer materially participates.

The Tax Court found the taxpayer failed both tests. He didn’t document the hours spent in the other businesses, which were clearly substantial. He also failed to prove he spent more than 750 hours on the real estate business.

(Merino, TC Memo. 2013-167.)

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Debt canellation for co-op apartment excludable.

The IRS ruled that a taxpayer could exclude the cancellation of indebtedness income relating to the reduction of a co-op apartment loan. The loan was used to expand the taxpayer’s residence to an adjacent apartment, so it qualified as principal residence indebtedness under Internal Revenue Code Section 108(a)(1)(E).

(Letter ruling 201328023.)

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Community public access television needs our help.

As you can see below, public access television is a vital part of our educational outreach to various communities. These are usually nonprofit, charitable organizations, like public television stations. Unlike those stations, most of the programming for the public access stations comes from local producers.

This programming includes the local arts, productions by students at local schools, community outreach by churches, independent local producers discussing current social issues, educational programming by local providers like ourselves and much more. In other words, public access television makes a unique, important contribution to the communities it serves.

With the difficult times we are experiencing, many public access stations are facing severe financial challenges, and might not survive without more community financial support. I urge you to consider making a donation to your local public access television station. Here is a link for a list of public access television stations in California: www.communitymedia.se/cat/linksca.htm.

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New time for Financial Insider Weekly in San Jose and Campbell, and online.

The broadcast time for Financial Insider Weekly in San Jose and Campbell is changing to 9:30 p.m. Pacific Time, effective this Friday, August 16. The program is broadcast as streaming video at www.creatvsj.org at the same time.

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Financial Insider Weekly broadcast schedule for August and September.

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 www.creatvsj.org.

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

August 16, 2013, Craig Martin, CFP®, The Family Wealth Consulting Group, "How to make sure your retirement portfolio outlives you"
August 23, 2013, David Beck, CFP®, Bay Area Planners, "Funding For A College Education Using Federal Tax Benefits"
August 30, 2013, David Beck, CFP®, Bay Area Planners, "Government financial help for families of deceased veterans"
September 6, 2013, attorney Naomi Comfort, Silicon Valley Elder Law, PC, "Tax planning for elders and their caregivers"
September 13, 2013, attorney Naomi Comfort, Silicon Valley Elder Law, PC, "Retirement and long-term care planning"
September 20, 2013, attorney Ray Sheffield, "Estate planning for retirement benefits"
September 27, 2013, Richard Lambie, professional fiduciary, "Selection and compensation of a professional fiduciary"

Financial Insider Weekly is also broadcast as follows:

Back episodes available at https://www.youtube.com/user/financialinsiderweek.

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

For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.

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Follow me on Social Media!

Want to see new episodes of Financial Insider Weekly as soon as they're posted on Youtube? Like to see Michael Gray's blog posts as soon as they're live? We post them (and more) on social media!

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+.

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Check out my blog.

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

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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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Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday


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