Michael Gray, CPA's

Real Estate Tax Letter

Michael Gray, CPA's Real Estate Tax Letter

February 11, 2016

© 2016 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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Loss from foreclosure was a capital loss, not a business loss.

Jeffrey Evans acquired properties with the intention of tearing them down and building new homes on the land. One of the properties was foreclosed in 2008, resulting in about a $1,041,000 loss, which he claimed as a business loss. He received about $556,000 of sale proceeds in 2009.

Mr. Evans was late filing his 2009 income tax return. The IRS prepared a tax return for him and assessed tax relating to the sale of some farm land. Mr. Evans later filed an income tax return, and claimed a net operating loss carryover to 2009. (He previously waived carryback on his 2008 income tax return.)

Later, Mr. Evans claimed the loss from the foreclosure should have been reported on his 2009 income tax return, because that's when he received the sale proceeds.

Mr. Evans represented himself before the Tax Court. He didn't stipulate that if the foreclosure loss was a capital loss for 2008, he would claim it as a capital loss carryforward to 2009.

The Tax Court ruled that Mr. Evans's activity was sufficient to qualify as a trade or business, so his loss from the foreclosure was a capital loss. Further, since Mr. Evans didn't stipulate the carryover of his capital loss, the Tax Court wouldn't consider it.

This was a harsh ruling.

Mr. Evans first mistake was not filing his 2009 income tax return on time. If he had filed a complete income tax return on time, he might not have attracted the attention of the IRS.

His second mistake was representing himself before the Tax Court. An astute tax attorney probably would have considered the possibility the Tax Court would rule the loss was a capital loss for 2008 and stipulated the capital loss carryover.

(Jeffrey J. Evans v. Commissioner, T.C. Memo. 2016-7, January 11, 2016.)

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Expect an information return if you book home rentals through an online service.

Airbnb and VRBO will be sending Form 1099-K to people who received rent through their online reservation services.

(The Kiplinger Tax Letter, January 29, 2016)

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Have you received your tax preparation materials?

If you haven't received a tax data organizer or instructions to submit information using the Tax Notebook and want us to prepare your income tax returns, please call Dawn Siemer at 408-918-3162 on Monday, Tuesday or Thursday.

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Make your tax return preparation interview appointment now.

Most personal interview appointments for preparing 2015 individual income tax returns will be scheduled in February. Many clients send their information without having an interview, but if you need that personal attention, you should schedule your interview appointment now. Call Dawn Siemer Monday, Tuesday or Thursday at 408-918-3162.

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The race is on!

Although the IRS and state tax authorities are increasing their security measures to protect taxpayers against identity theft, it is a fact of life. A step you can take to protect yourself is to file your tax returns early. In several cases, clients have efiled their income tax returns and had the returns rejected because someone else has already filed a tax return using their social security number. When this happens, any refund is delayed while the IRS or other tax authority straightens out the taxpayer's account. So, be sure you file your income tax returns first, if possible.

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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 February and March.

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 February and March:

February 12, Mark Erickson, attorney at law, "Child custody in divorce"
February 19 and 26, Mark Erickson, attorney at law, "Spousal support for California divorces"
March 4, Peter Moss, Wymac Capital, Inc., "Mortgage market update"
March 11, Phil Price, EA, The Price Company, "Qualified retirement plans for small businesses"
March 18 and 25, Richard H. Lambie, professional fiduciary, "The role of the professional fiduciary"

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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