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.…Continue readingWhen is Rental Real Estate a Business?

The Late Mark-to-Market Election

Those who trade stocks can take advantage of the mark-to-market election to convert capital losses into ordinary losses. This election is only available to “traders.” There are often questions as to when a taxpayers trading activities are sufficient to warrant being treated as a “trader” for tax purposes. By the time the taxpayer discovers that…Continue readingThe Late Mark-to-Market Election

Sale of Long-Term Service Contracts: Capital or Ordinary Gain?

If a taxpayer sells a business that owns long-term service contracts, is the gain attributable to the contracts subject to tax at ordinary or capital gains rates? The IRS’s recent action on decision for the Greenteam Materials Recovery Facility PN v. Commissioner, T.C. Memo. 2017-122 court case deals with this in the context of a…Continue readingSale of Long-Term Service Contracts: Capital or Ordinary Gain?

Appropriate a Book of Business, Capital or Ordinary Gain?

If an investment advisor is terminated by the bank he works for and the bank keeps the advisors book of business, is the bank compensating the investment advisor for the sale of his book of business or is it paying compensation for services? One would seem to produce capital gain and the other ordinary gain.…Continue readingAppropriate a Book of Business, Capital or Ordinary Gain?

Litigation Award for Damage to Dairy Farm Ordinary Not Capital

If a dairy farmer receives an award for damages to the farm, is the damage award capital or ordinary?  The distinction is important.  Unlike ordinary income, capital gains are generally afforded lower tax rates and not subject to self-employment taxes.  The court considered this fact pattern in Allen v. United States, No. 16-C-1412 (E.D. Wis. 2018). Facts &…Continue readingLitigation Award for Damage to Dairy Farm Ordinary Not Capital

Payment for Failed Real Estate Deal, Capital or Ordinary Gain?

How is a termination payment for a failed real estate deal taxed?  Does it trigger capital or ordinary gain?  The court recently addressed this in CRI-Leslie, LLC v. Commissioner, 147 T.C. 8. Facts & Procedural History The taxpayer owned a Radison-branded hotel in Florida.  It entered into a contract to sell the hotel to a third…Continue readingPayment for Failed Real Estate Deal, Capital or Ordinary Gain?

Sale of Lottery Payments, Capital or Ordinary?

While lottery winnings may be subject to tax at ordinary tax rates, what about the sale of the right to receive annual lottery payouts?  The court addressed this in Prebola v. Commissioner, T.C. Memo 2006-240. Facts & Procedural History The taxpayer won $17.5 million from the lottery.  She selected the annual installment option, which would pay out…Continue readingSale of Lottery Payments, Capital or Ordinary?