Michael Gray, CPA's

Real Estate Tax Letter

October 2, 2014

© 2014 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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Extended 2013 calendar year individual income tax returns are due October 15.

Remember the extended due date for 2013 income tax returns is October 15, less than two weeks away. If you haven't done so already, get the information to prepare your tax returns to your tax return preparer now. This is the extended tax season for tax return preparers, so plan on preparers being under stress and grumpy. Bring food.

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New hours for our office manager.

Dawn Siemer's new hours are 8:30 a.m. to 5:30 p.m. on Monday, and 9 a.m. to 2 p.m. Wednesday through Friday starting next week. As always, you're welcome to leave her voicemail at (408) 918-3162 any time.

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New California efile requirement for business tax returns.

Beginning January 1, 2015, for taxable years beginning on or after January 1, 2014, any business entity that files an original or amended income tax return using tax return preparation software is required to e-file its California income tax return with the Franchise Tax Board. A waiver can be requested for technology constraints, undue financial burden or reasonable cause.

The Franchise Tax Board plans to post details to its web site shortly.

(Assembly Bill 2754, signed by Governor Brown September 19, 2014.)

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Tenant reimbursements for improvements weren't rent.

The IRS Chief Counsel issued advice that tenant reimbursements to a landlord for improvements made by the landlord to leased premises on behalf of the tenant weren't taxable as rental income. The lease didn't specify that the payments were in lieu of rent. The landlord was allowed to simply reduce the depreciable cost of the improvements for the reimbursements received.

(CCA 201436048, April 29, 2014.)

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Final repair regulations issued relating to dispositions.

The IRS has issued final Treasury Regulations that explain accounting rules for dispositions, including general asset accounts and partial dispositions. The regulations generally follow guidance issued in proposed and temporary regulations that previously issued.

The most significant change in the dispositions section of the repair and capitalization project is the ability to elect to deduct a partial disposition. In exchange for the election, the taxpayer must capitalize any repair or restoration of the disposed item.

The regulations are effective on August 14, 2014, and apply to taxable years beginning on or after January 1, 2014.

This is the final item scheduled to be issued in the IRS's repair and capitalization project.

Since the regulations require filing change of accounting method forms, tax advisors should be studying them and assembling information for 2014 tax reporting.

(T.D. 9689.)

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IRS issues accounting change procedures for repairs and capitalization.

To implement accounting changes under the new repair and capitalization regulations issued by the IRS, taxpayers will file accounting method change forms with their tax returns and a separate copy mailed to the IRS. The IRS will automatically consent to most of these changes. The IRS has issued revenue procedures to explain how this will all work. Almost all taxpayers with rental properties and businesses will need professional help with preparing their 2014 income tax returns. Tax return preparers should study these procedures to prepare for the 2015 tax season.

(Revenue Procedures 2014-17 and 2014-54.)

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Proper planning can avoid California property tax reassessment.

Michael Dell and his wife, Susan Lieberman Dell, negotiated to purchase the Fairmont Miramar Hotel in Santa Monica, California. Before the purchase was closed, it was restructured so that the hotel itself wasn't purchased, but the entity that owned it, Ocean Avenue LLC. The purchasers were 49% by Susan, 42.5% by Michael, and 8.5% by Hotel Investor LLC (mostly owned by Michael). When the dust settled, Susan owned 49% and Michael owned, directly and indirectly, 48.19%.

The County of Los Angeles tried to reassess the property for a change of ownership. The California Superior Court and the California Court of Appeals held there was no change of ownership because no one acquired a majority interest in the entity that held the property.

(Ocean Avenue, LLC v. County of Los Angeles, (June 4, 2014) 214 Cal. App. Unpub., "Sailing the Ocean decision to avoid property tax reassessments", Spidell's California Taxletter®, September, 2014, page 6.)

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Do you need help with amended income tax returns?

We have already been meeting with folks who want a second look at their 2013 income tax returns for possible corrections. Call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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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 October and November.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 8:00 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 October and November:

October 3, 2014, G. Scott Haislet, attorney at law, "The net investment income tax and real estate professionals"
October 10, 2014, Janis Carney, attorney at law, Carney Elder Law, "The women's long-term care project"
October 17, 2014, repeat of "The women's long-term care project"
October 24, 2014, Michael Jones, CPA, Thompson Jones LLP, "Community property issues for retirement accounts"
October 31, 2014, Michael Jones, CPA, Thompson Jones LLP, "Handling retirement accounts after a death"
November 7 and 14, 2014, Cynthia Sue Larson, MBA, Life Coach, "How to manage emotions for financial decisions"
November 21, 2014, Mari Ellen Loijens, Silicon Valley Community Foundation, "Why and how to promote charitable giving in your family"
November 28, 2014, Tom Oviatt, Wymac Capital, Inc., "Reverse mortgage 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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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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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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