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The March 2014 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

March 19, 2014

© 2014 by Michael C. Gray
ISSN 1930-0387

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

Table of Contents

It's extension time.

If you want us to prepare your 2013 income tax returns and we haven't already received the information to do so, we will probably have to prepare extensions. Please call Dawn Siemer immediately on Mondays, Wednesdays or Fridays at 408-918-3162 to make an appointment if a meeting is essential.

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April 15 is coming!

April 15, 2014 is the due date for 2013 calendar year individual income tax returns, fiduciary income tax returns and partnership income tax returns. You can usually apply for extensions of time to file the tax returns and there can be advantages for doing it, such as extending the time for making a contribution to a qualified retirement plan. Remember, the time is not extended for paying the income tax. Even if you are applying for an extension, you still need to make a good estimate of the tax.

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What if you don't have the money to pay the tax?

If you don't pay at least 90% of the tax by April 15, there is a potential penalty for filing the tax return late. That's 5% per month to a maximum of 25%. There are even more serious penalties that can sometimes apply.

If you don't have the money to pay the taxes, I recommend that you file as good of a tax return as you can by April 15 and "fine tune" it with an amended tax return later. This should help you avoid the penalty for filing a late income tax return.

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Remember that an estimated tax payment is also due.

The first 2014 estimated tax payment for individuals and most other calendar year entities is also due on April 15, 2014. The penalties for late payment of estimated taxes are computed as simple interest, currently at low interest rates.

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Second real estate payment date is April 10.

This is a date that's easy to slip by. Remember to make the second California real estate property tax payment by April 10, 2014. There is a nasty penalty for late payments. Why not take care of it now?

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Owning rental real estate in many states can complicate your life.

Remember that having rental income from real estate located in a state subjects you to tax reporting in that state, even when you have losses. It's a good idea to report anyway, because you might be eligible to carry forward disallowed passive activity losses from the property. Filing multiple state income tax returns is one of prices one pays for being an investor in properties in many states. Some states, like Washington, Florida, Texas, and Nevada don't have state individual income taxes, so you don't have to file income tax returns for them. Other franchise and business taxes might apply.

Getting good tax advice and tax return preparation help can be a good investment.

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Spouse's participation doesn't count on a married, filing separate income tax return.

A taxpayer claimed real estate professional status based on services performed by her spouse, so real estate losses should be currently deductible. The Tax Court upheld the IRS in finding that the services performed by a spouse aren't counted under the passive activity loss rules on a married, filing separate income tax return.

(Oderio, TC Memo. 2014-39.)

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IRS releases instructions for net investment income tax form.

The IRS has finally issued 20 pages of instructions for Form 8960, Net Investment Income Tax - Individuals, Estates and Trusts. This is the 3.8% tax on net investment income for high-income taxpayers, which became effective in 2013. You can get the instructions at www.irs.gov.

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Ways and Means Chair proposes repealing tax-deferred exchanges.

In exchange for reducing individual income tax rates, House Ways and Means Chairman Dave Camp proposes curtailing or eliminating several tax breaks, including repealing tax-deferred exchanges. (President Obama has proposed limiting the deferral to $1 million.) This tax benefit is a key advantage for investing in real estate. If you want to preserve it, write to your representatives in Congress.

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Does your group need a speaker?

We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as "How I created a public access television show broadcast on eleven Bay Area stations." To make arrangements, call Michael Gray at 408-918-3161.

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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+.

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Financial Insider Weekly broadcast schedule for March and April.

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 March and April.

March 21, 2014, Alan Nobler, attorney at law, "How a collaborative team can help preserve your legacy"
March 28, 2014, Stephen H. Salmeyer, attorney at law and psychologist, "Why emotions matter when resolving financial disputes"
April 4, 2014, attorney Mary Russell, Stock Option Counsel, "Employee Stock Option Basics"
April 11, 2014, attorney Francis Burton Doyle, WealthPlan, "Developments for family limited partnerships and LLCs"
April 18, 2014, attorney Francis Burton Doyle, WealthPlan, "Elder abuse issues in estate planning"
April 25, 2014, Judy Barber, Family Money Consultants, LLC, "Raising money-smart kids in the midst of affluence"

Financial Insider Weekly is also broadcast as follows:

  • Monday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • Monday at 4:00 p.m. and 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill and broadcast on the internet at the same time as streaming video at www.mhat.tv
  • Mondays at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
  • Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
  • Tuesday at 2:30 a.m. and 12:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
  • Tuesday at 4:00 p.m. and 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill
  • Broadcast on the internet at the same time as streaming video at www.mhat.tv
  • Wednesday at 6:00 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
  • Wednesday at 8:00 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 2 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
  • Friday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • Friday at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
  • Friday at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
  • 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"
  • Friday at 8:00 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
  • Saturday at 9:00 a.m. and 6:00 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
  • Saturday at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County

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.

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


A monthly newsletter focusing on tax issues for the homeowner and real estate investor, by certified public accountants in California.
Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766