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The May 2015 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

Michael Gray, CPA's Real Estate Tax Letter

May 15, 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

Second quarter estimated tax deadline is June 15.

The second estimated tax due date for calendar-year taxpayers is June 15. Federal estimated tax payments (for estimated tax exceeding withholding) can be based on 110% of 2014 tax on your income tax return if your adjusted gross income exceeds $150,000. Alternatively, you can make payments based on your income and deductions for 2015.

The California payment is 40% of estimated tax for the year. Like federal estimated tax payments, California payments can be 110% of 2014 tax, unless your adjusted gross income is $1 million or more. In that case, your estimated tax payments should be based on your actual income and deductions for 2015.

If you want our help computing your second quarter estimated tax payments, call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment for a consultation.

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California LLC fee payment is due June 15.

The due date for calendar year California LLCs make their 2015 annual fee payment is June 15, 2015. The fee is based on the expected gross income of the LLC, and can be based on the fee reported on the 2014 income tax return for the LLC. The fee for LLCs that have less than $250,000 of gross income is zero. See your tax advisor for help with computing the fee for your LLC.

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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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Dawn Siemer's work schedule changed.

Dawn Siemer, our office manager who also schedules our appointments, is now working Mondays, Wednesdays and Fridays from 9 a.m. to 5 p.m. Her direct telephone number is 408-918-3162.

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Michael Gray gives a LIVE seminar presentation for tax professionals.

Michael Gray will present Part 2 of a two-part series of lunchtime presentations of a "Survey of lifetime gift planning and Form 709" for the Estate & Trust Group, Silicon Valley San Jose chapter of CalCPA. The presentation will be from noon to 1:30 p.m. on Thursday, June 18 at Abbott Stringham & Lynch, 1550 Leigh Ave. in San Jose. Lunch is included. The investment with an advance reservation is $20 for CalCPA members and $30 for nonmembers. For reservations, call Stephanie Stewart at 408-983-1122 or register online at www.calcpa.org/events-and-programs/event-details?id=fcd554ea-507b-46c7-b23d-fd4d841851b6

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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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Investment interest deduction disallowed for home mortgage loan.

Jerry and Sun Nam Sun refinanced their residence. A portion of the funds were deposited to the bank of account of a corporation owned by the Suns, and a notation was made on the books that the deposit was a loan from the Suns. The Tax Court upheld the IRS in disallowing a deduction for investment interest expense on the Suns' 2008 and 2009 income tax returns.

The Tax Court said the Suns failed to adequately substantiate that the interest expense qualified as investment interest expense. The Court said the loan to the corporation wasn't an investment, but a personal loan.

In its discussion, the Court noted that residential mortgage interest accounted for using the simplified method doesn't qualify for allocation to other interest classifications, such as investment interest expense. The taxpayer must use the exact method to make the allocation.

In hindsight, the taxpayers should have documented the loan with a written, interest-bearing note. Alternatively, the corporation could have issued stock in exchange for the cash deposit as documentation of the deposit as an investment.

(Minchem International, Inc. v. Commissioner; Sun v. Commissioner, T.C. Memo. 2015-56, March 24, 2015.)

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Deduction allowed for bargain sale donation.

A married couple successfully defended a $2.1 million deduction for a bargain sale of land to a charity. The land was appraised at $4.1 million and the land was sold for $2 million. The taxpayers had the land appraised and received a qualified acknowledgement from the charity. The Court did criticize the appraisal to reduce the appraised value slightly, but the decision was a taxpayer victory.

The IRS claimed the taxpayers didn't have a charitable intent because they retained a small easement for the property. The Court said the easement was insignificant. The Court also found the taxpayers' appraiser more credible than the IRS's appraiser.

(Davis v. Commissioner, T.C. Memo. 2015-88, May 6, 2015.)

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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 May and June.

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 May and June:

May 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"
June 5, 2015, Tom W. Anderson, President, Retirement Industry Trust Association, "Making alternative investments besides real estate using a Roth or IRA account"
June 12 and 19, 2015, Don Pollard, CLU, ChFC, Advanced Professionals, "Health care plans for small businesses update"
June 26, 2015, Michael Desmarais, attorney at law, "Your rights as a beneficiary"

Financial Insider Weekly is also broadcast as follows:

  • Sunday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • Sunday at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
  • Monday at 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
  • Monday 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
  • Monday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • Tuesday at 10:30 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
  • 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 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 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
  • Thursday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • 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 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
  • 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 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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Subscribe or remove yourself from Michael Gray, CPA's Real Estate Tax Letter

If you would like to subscribe to our newsletter, fill out our form at http://www.realestatetaxletter.com, or email us at dgsiemer@taxtrimmers.com with "subscribe" as the subject. Be sure to include your name and email address.

We do work hard at producing this newsletter, and intend for it to provide meaningful and helpful information. If you have any comments or suggestions, email us at dgsiemer@taxtrimmers.com.

If, for any reason, you would prefer not to receive our newsletter, you can "unsubscribe" using the link below, or email us at dgsiemer@taxtrimmers.com with "unsubscribe" as the subject.

Michael Gray, CPA
2190 Stokes St., Suite 102
San Jose, CA 95128
408-918-3162

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The March 2015 issue of Michael Gray, CPA's Real Estate Taxletter, 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