Michael Gray, CPA's Real Estate Tax Letter

May 8, 2018

© 2018 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 cleanup and extensions.

Maybe you have an issue for which you would like a second look on the income tax returns you just filed. Maybe you have extended income tax returns that you need to have prepared. Or maybe you have some planning issues for which need advice. To make an appointment, call Thi Nguyen, CPA at 408-286-7400, extension 206.

Return to Table of Contents

Have you checked out Jay Abraham's outstanding FREE resources?

Jay Abraham is a highly respected marketing and business consultant who I study regularly. He has highly imaginative tactics and business success insights. He offers both written and video material that is available FREE at www.Abraham.com/50shades. Two of my favorite "shades" are the first two on "The Maven Matrix" and "Preeminence." If you haven't done so already, I highly recommend that you check out his "50 Shades" web site and join Jay's email list at the very bottom or at the introduction for each Shade. No opt in is required to access the material on the "50 Shades" web site.

Return to Table of Contents

Home remodeling deductions disallowed.

The Tax Court upheld the IRS in disallowing current deductions for remodeling a home. $21,109 of $39,520 of expenses were for vehicle and aircraft transportation. The taxpayers didn't have any other properties that they had remodeled and sold. The level of their activity wasn't sufficient to establish a trade or business. The IRS and the Tax Court said the expenses should be treated as an additional investment in the home at the time it is was sold.

(Havener and Costa v. Commissioner, T.C. Summary 2018-17, April 4, 2018.)

Return to Table of Contents

Aircraft chartering business couldn't be grouped with real estate development business.

The Tax Court upheld the IRS in disallowing losses from an air chartering business, which taxpayers claimed should be grouped with their real estate development business. The Tax Court found that the air chartering business wasn't an "appropriate economic unit" to combine with the real estate development business, and that the taxpayer didn't materially participate in the air chartering business. (The operation of the air chartering business was subcontracted to another company.) The tax deficiency was $152,602 and the accuracy penalty for negligence of $30,520 was also upheld. Ouch!

(Brumbaugh v. Commissioner, TC Memo. 2018-40, April 3, 2018.)

Return to Table of Contents

Title doesn't control determination of community property.

The California State Board of Equalization (BOE) has issued a letter relating to the determination of whether real estate is held as community property. The letter follows a California Supreme Court ruling, In re Marriage of Valli, 58 Cal. 4th 1396. According to Property Tax Rule 63, owners are excluded from reassessment for transfers between spouses and any transfers between spouses of interests in legal entities.

The previous policy of the BOE was that legal title held by just one spouse, even if acquired during marriage, would not be treated as community property owned equally with the other spouse absent contrary "clear and convincing evidence." County assessors relied on the deed to determine ownership by the spouses.

In 2014, the California Supreme Court ruled that life insurance titled to just one spouse as owner was community property because it was acquired during marriage.

Now county assessors will have to make more detailed inquiries about the title for the property. In order to convert property to separate property, both spouses should consent to the conversion in writing. County assessors might also request a certificate of marriage when examining the ownership of property. (Note that property received by an individual as a gift or inheritance is separate property, even when received by a married person.)

(BOE Letter No. 2018/14, Spidell's California Taxletter, May, 2018, p. 6, "Community property and spousal transfers.")

Return to Table of Contents

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+.

Return to Table of Contents

Financial Insider Weekly past episodes

After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes are now on our home page at Back episodes available at https://www.youtube.com/user/financialinsiderweek.


Return to Table of Contents

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.

Return to Table of Contents

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+.

Return to Table of Contents

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

Return to Table of Contents

Check out my blog.

I have also started a blog at michaelgraycpa.com. Check it out!

Return to Table of Contents

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.

Return to Table of Contents

Subscribe to the Real Estate Tax Letter

Did you find this newsletter helpful? If so, subscribe now!

Return to Table of Contents

Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

Find us on Facebook
Follow me on Twitter
Connect on LinkedIn
Connect on Google+
Our Blog
© 2018

Subscribe to Michael Gray, CPA's
Tax & Business Insight

We respect your email privacy