Michael Gray, CPA's

Real Estate Tax Letter

November 8, 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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Have you made your year-end planning appointment?

2013 will soon be over. Will you be ready? Our year-end tax planning calendar is filling up fast, and we won't be here for certain holidays. Reserve your appointment now by calling Dawn Siemer on Mondays, Wednesdays and Fridays from 9 a.m. to 5 p.m. at 408-918-3162.

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IRS explains expense election for "qualified real property."

The IRS has issued a Notice explaining the expense election under Internal Revenue Code Section 179 for "qualified real property." Qualified real property is depreciable real property that is used in the taxpayer's trade or business, is not air conditioning or heating units, and qualified leasehold improvement property (IRC Section 168(e)(6), 168(k)(3), and Treasury Regulations Section 168(k)-1(c), qualified restaurant leasehold improvement property, or qualified retail improvement property.

Up to $250,000 of the total $500,000 limitation for the expense election can be used for qualified real property.

The American Taxpayer Relief Act (fiscal cliff legislation) passed January 2, 2013 extends the expense election to qualified real property acquired in 2010 - 2013. (It previously expired after 2011.)

Any of the expense election amount attributable to qualified real property that isn't used in 2013 can't be carried forward to 2014. The disallowed amount is added back to the depreciable basis of the property. The Notice explains how to allocate the unused expense amount to qualified real property and depreciable personal property.

Any amount expensed under IRC Section 179 for qualified real property is treated as an amortization expense that can be recaptured as ordinary income when the property is sold.

(Notice 2013-59, September 10, 2013.)

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Investment in real estate management business qualified for estate tax deferral.

When the value of an interest in a closely-held business owned by a decedent exceeds 35% of the adjusted gross estate, the estate may elect under Internal Revenue Code Section 6166(a) to pay estate tax attributable to the business in two to ten equal installments after a five-year period when no payments are required.

The IRS found that a business involved in selling and leasing used equipment constituted a trade or business.

The IRS also found that a second business involved in the acquisition, development, leasing, operation and management of commercial real properties also constituted a trade or business.

Another business that was involved in renting and leasing personal property was a qualified lending and finance business. These businesses don't qualify for a five-year deferral, but estates can elect to pay federal estate tax with respect to these businesses in up to five installments.

(Letter Ruling 201343004, July 17, 2013.)

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IRS processing delayed by federal shutdown.

The IRS has announced that they won't be able to start processing 2013 income tax returns on time, because they were shut down for 16 days during October. They need more time to prepare for processing the tax returns. The expected date for the IRS to start processing 2013 income tax returns is about January 28, 2014, but no later than February 4.

The April 15 filing deadline won't be changed.

Despite the delay in being able to submit income tax returns, we urge our readers and our clients to go ahead as you normally would and get your information to your tax return preparer early to avoid a bottleneck and applying for an extension of time to file your income tax returns.


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Should you buy business equipment before December 31?

Remember the increased expense election and bonus depreciation are scheduled to expire after December 31, 2013. Congress might extend these incentives, but we don't know if they will. Consider making your business equipment purchases before the end of the year. See your tax advisor for details.

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Seniors, remember to take your required minimum distributions.

Generally when a participant in a retirement plan or an IRA reaches age 70 ½, minimum distributions are required to be made by December 31 each year. The distributions are also required to be made for inherited accounts. Roth accounts are excluded from this rule during the original owner's lifetime. See your tax advisor for details.

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Financial Insider Weekly broadcast schedule for November and December.

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 November and December:

November 8, 2013, attorney William Mahan, of counsel to Gates Eisenhart Dawson, "Tax considerations of title"
November 15, 2013, attorney Bettie Baker Marshall, "Legal considerations of caring for incapacitated persons"
November 22, 2013, Emmett Carson, PhD, CEO, Silicon Valley Community Foundation, "Promoting Community Giving as a Family Value"
November 29, 2013, Geraldine Barry, President, San Jose Real Estate Investors Association, "How I got started investing in real estate"
December 6, 2013, Greg Carpenter, BTI Group Mergers & Acquisitiions, "Preparing to sell a business"
December 13, 2013, Greg Carpenter, BTI Group Mergers & Acquisitions, "Buying a business"
December 20, 2013, attorney James V. Quillinan, Hopkins & Carley, "Should a family trust be terminated considering recent tax law changes?"
December 27, 2013, Peter Moss, Wymac Capital, Inc., "Mortgage market developments"

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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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.

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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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