Michael Gray, CPA's

Real Estate Tax Letter

Michael Gray, CPA's Real Estate Tax Letter

April 24, 2015

© 2015 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 time for preparing extended income tax returns

If you extended the due date for your 2014 income tax returns and want our help preparing them, call Dawn Siemer at 408-918-3162 to make an appointment.

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Dawn Siemer's hours change.

Dawn Siemer is our office manager and schedules our appointments. Her working hours are changing to 9 a.m. to 5:30 p.m. on Mondays, Wednesdays and Fridays.

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Our books are now available for purchase online!

We recently launched a new website for Michael Gray's publishing company, the Silicon Valley Publishing Company. You can buy our books on the website here: www.siliconvalleypublishingcompany.com.

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It's time to file personal property tax statements.

California personal property tax statements for businesses are "officially" due April 1. In Santa Clara County, the last day for filing the 2015 report without a penalty is May 7, 2015.

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Foreign account reports will soon be due.

The due date for FinCEN 114, the report of foreign accounts for 2014, is June 30, 2015. It applies for foreign bank and brokerage accounts and certain other financial accounts exceeding $10,000 at any time during 2014 owned by the taxpayer or for which the taxpayer had signature authority. The form must be efiled. If you have any questions about this form, consult with your professional tax advisor.

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IRS gives penalty relief for taxpayers who received incorrect health care information returns.

The IRS has announced it will waive some penalties for taxpayers who received an incorrect or late Form 1095-A, Health Insurance Marketplace Statement. The form is used to compute whether the taxpayer qualifies for an additional subsidy or must repay an excess subsidy received. The IRS has also posted updated FAQs about Form 1095-A on its web site.

(IR-2015-70.)

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Tax Court affirms IRS recharacterization of rents.

A husband and wife claimed that income realized from the rental of commercial real estate by an S corporation that they owned to a medical corporation that they also owned and materially participated should be classified as passive activity income. The IRS recharacterized the rental income as nonpassive in accordance with the regulations for passive activities under the "self-rental" rule.

The taxpayer claimed the rules limiting the benefits of passive activities for rentals to a controlled corporation shouldn't apply to rentals by a controlled S corporation.

The Tax Court held against the taxpayers and said the regulations were valid.

The passive activity rules are complex and may not make sense to real estate investors. That's why they should be working with tax professionals who are familiar with the rules.

(Williams, TC Memo. 2015-76.)

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Taxpayer successfully defends real estate professional status.

Ellen O'Neill worked regularly in a real estate activity managing 12 rental properties. She claimed real estate professional status, and applied her rental losses against other income on her joint income tax return.

On examination, the IRS found she didn't qualify as a real estate professional because she didn't document spending more than 750 hours in her rental real estate activity. She resubmitted the log to reflect her hours travelling to the properties, but the IRS refused to accept the revised log.

The Tax Court believed Ms. O'Neill and accepted her revised log. The fact that the real estate was her only business was persuasive to the Tax Court. They believed her accounting for the travel hours was reasonable.

It's good to see someone succeed in defending real estate professional status against an IRS challenge. It can be done, but the facts have to be right.

(Leyh and O'Neill v. Commissioner, TC. Summary Opinion 2015-27.)

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Mortgage interest disallowed for foreign real estate.

The Tax Court upheld the IRS in disallowing a mortgage interest deduction for real estate that a married couple claimed they owned in Syria. There was no evidence that they ever used the home as a qualified residence or that they rented the property.

The taxpayer's situation was made more difficult because of the civil war in Syria. The mortgage company that prepared a letter stating the taxpayers owned the property was out of business.

A negligence penalty was also upheld.

(Al Soufi and Schreitah v. Commissioner, T.C. Memo. 2015-68.)

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IRS issues audit techniques guide for foreclosure and cancellation of debt.

The IRS has issued an audit techniques guide for mortgage foreclosures and cancellation of debt. Apparently they are preparing to examine some of the millions of tax returns on which exclusions have been claimed during the economic downturn. You can get the guide at the IRS web site, www.irs.gov.

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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 April and May.

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 April and May:

April 17 and 24, 2015, David Howard, CPA and attorney at law, Loomis & Co CPAs, LLP, "Foreign account reporting update"
May 1, 2015, Professor Patricia Cain, Santa Clara University School of Law, "Tax developments for same-sex couples"
May 8 and 15, 2015, William J. Mitchell, CPA, "I'm being audited by the IRS! What should I do?"
May 22, 2015, William J. Mitchell, CPA, "What to do when you disagree with an IRS audit report"
May 29, 2015, Tom W. Anderson, President, Retirement Industry Trust Association, "Investing in real estate using a Roth or IRA account"

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 Twitter, Facebook, LinkedIn and Google+!

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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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

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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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