Our Federal income tax laws take a broad view of what counts as income and gain. The tax law then imposes a ridged framework for classifying and computing tax on income or gain. By casting the net wide, the tax law is able to capture just about every type of transaction that one could dream…
Category: Tax
Tax
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What is a Rental Activity?
The ability to generate current year tax losses is a strong incentive for high-income taxpayers to own real estate. Real estate often produces tax losses, but not economic losses. This happens because the current operating expenses plus tax depreciation result in a current year loss. At the same time, the property likely increased in value…
Divorce Payments & Tax Basis in Business
Our Federal income tax laws often build upon the presumption that seemingly adverse parties are actually adverse. Our tax laws do not always account for instances where the parties are actively working in concert to reduce the IRS’s cut. Transfers and payments made in relation to divorce are an example. With our tax laws, it…
When is Rental Real Estate a Business?
Our tax laws are not perfect. There are grey areas. Most of these grey areas are of little consequence as they do not have a significant impact on the amount of tax that is due. There are other grey areas that can significantly impact the amount of tax due. These tax disputes are frequently litigated.…
Avoiding Tax on Discharge of a Mortgage
There are times in life when you may feel that you can’t get ahead. One step forward, two steps back–as they say. Paying income tax on debt that you avoid is an example. You negotiate with the lender or creditor and they agree to settle the balance for less. One step forward. Then a few…
Avoiding the 60-Day IRA Rollover Requirement
If a taxpayer takes money out of their retirement account, they generally have to pay income tax on the amount distributed. What if the taxpayer wants to put the money back into the account? There have been several examples where Congress has allowed taxpayers to put money back into their accounts. The recent CARES Act…
Avoid Tax by Returning Pay
There are times when a business structure or transaction no longer makes sense. This may be due to a change in the business environment, such as swings in the economy or unexpected gains or losses. It can also arise due to a change in the owners’ personal circumstances, such as a divorce or death of…
Worker Reclassification: Degree of Control
The Groundhog Day movie from the 90’s starring Bill Murray portrays a news anchorman who lives the same day over and over again. He is stuck in a loop. Each day starts the same way. Bill tries to alter his conduct and he interacts with different people throughout the movie. The other characters act and…
Avoiding Gift Taxes With Formula Clauses
Congress has slowly upped the amount that can be transferred free of estate and gift taxes. This amount has changed over time. It was $1 million in 2003. It is now just over $11.5 million in 2020. This means that many people do not need to worry about estate and gift taxes. Estate and gift…
Deducting Interest for More than One Home
The mortgage interest deduction seems simple enough. The Code provides a deduction for mortgage interest that is paid during the year. It starts with a broad grant: There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness. Then these 18 words in a single sentence are followed…