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The November 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

November 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 year-end planning

The year is almost over! Schedule your year-end appointment now. With vacation and celebrating holidays, the times for appointments will be very limited. Call Dawn Siemer at 408-918-3162 on Mondays, Tuesdays or Thursdays to reserve your appointment now.

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Half-price introductory offer for two new books by Michael Gray.

We are issuing 2015 updates for two books, Employee Stock Options - Executive Tax Planning and How to use Roth and IRA accounts to build a secure retirement. We expect to be able to ship the books by mid-December 2015.

You can now pre-order the books on our publisher website, www.siliconvalleypublishingcompany.com

Or you can still call Dawn Siemer at 408-918-3162 on Monday or Tuesday.

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New partnership audit rules adopted.

President Obana has approved the Bipartisan Budget Act of 2015 on November 2, 2015. The legislation includes dramatic changes in the federal income tax audit rules that apply to partnerships (including most limited liability companies.) The rules replace the existing "TEFRA" audit rules that were adopted back in 1982. The changes are effective for tax returns filed for partnership tax years beginning after 2017.

Under the new rules, partnerships will generally be audited at the entity level, excluding the individual partners. Any adjustments will be made at the partnership level in the year the audit or judicial review is completed. The partnership, not the individual partners, will pay any tax due, which will generally be determined using the maximum federal income tax rate.

The partnership will have the option of demonstrating that the adjustment would be lower if it was based on partner-level information from the reviewed year.

Partnerships with 100 or fewer qualifying partners may opt out of this new audit regime. Partnerships that opt out will be audited under the general rules applicable to individual taxpayers, which will open up the individual income tax returns of the partners for audit.

These rules were adopted to resolve administrative difficulties the IRS was having with partnership audits.

Since partnership income is traditionally taxed to the individual partners on a pass-through basis, the audit rules are a dramatic change.

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IRS audits of individuals are way down.

Thanks to reduced funding to the IRS by Congress, the audit rate for individual tax returns has declined from 291,000 field audits in fiscal year 2014 to 267,000 in fiscal year 2015. The number of correspondence audits increased from 951,000 for fiscal year 2014 to 961,000 for fiscal year 2015. The revenue from examinations fell from $12.5 billion for fiscal year 2014 to $7.3 billion for fiscal year 2015.

Congress is making a serious mistake. The easiest way to raise revenue without increasing income tax rates is to simply enforce the tax laws.

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Tax extenders on the agenda.

Now that Congress has passed a budget, it can turn its attention to many tax breaks that expired after 2014. Thanks to Kevin Smith, who wrote to me that the exclusion for cancellation of debt income relating to a principal residence is one of the items that Congress is considering extending. Stand by for more developments.

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California issues publications for real estate withholding guidance.

The California Franchise Tax Board has issued two new publications: FTB 4065, Quick Reference Guide - California Real Estate Withholding Forms and FTB 4035, California Real Estate Withholding, Trusts. You can find these publications at the Franchise Tax Board's web site, www.ftb.ca.gov.

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LLC simply holding a personal residence might not be taxable.

The Franchise Tax Board, in its Tax News publication for November, 2015, pointed out that the annual tax and fee are payable to California when an LLC is doing business in California. Since a single member LLC that is holding a personal residence isn't "doing business," it seems it shouldn't be subject to the tax. (See your tax advisor. This is not a formal ruling.)

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First real estate tax payment due date is December 10.

Remember to make your first real estate tax payment by December 10 to avoid a nasty penalty. Some people like to pay the full amount to accelerate the tax deduction for the second installment. Before doing so, check whether you are subject to the alternative minimum tax, which eliminates the tax benefit.

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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 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 November and December:

November 27, 2015, Lisa Barr, Silicon Valley Community Foundation, "How to promote community giving as a family value"
December 4, 2015, G. Scott Haislet, CPA and attorney at law, "Real estate professionals and passive activity losses"
December 11, 2015, G. Scott Haislet, CPA and attorney at law, "Section 1031 tax-deferred exchanges"
December 18, 2015, G. Scott Haislet, CPA and attorney at law, "Sale of a principal residence"
December 25, 2015, Don Pollard, CLU, ChFC, Advanced Professionals, "Medical insurance for individuals"

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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The November 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