One of the best tax planning strategies is simply to accept payment over time. This is a simple, but effective tax planning strategy as it can allow taxpayers to spread out their tax liability over time. This is possible given the installment sale rules. What happens if you sell an asset and are to receive…
Category: Federal Income Tax
Federal Income Tax
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M&A Finders Fee Not Deductible for Acquirer
If a company acquires another company and pays a finders fee to the party who connected the two for the sale, is the finders fee deductible by the acquirer? This question touches on whether an expense is deductible if the real benefit is to another company. The court addresses this in Plano Holding LLC v.…
The Broad Reach of the Economic Substance Doctrine
Congress provides tax incentives to change taxpayer behavior. If a taxpayer changes their behavior to take advantage of the incentive, they have to do so carefully. The IRS and the courts can apply the economic substance doctrine to take away the tax benefit. This doctrine can apply to more transactions than what one would consider…
Documenting the Sec. 199a Rental Real Estate Safe Harbor
We have previously considered the “trade or business” requirement for the Section 199a deduction. The government recently issued guidance to clarify when rental real estate activities can qualify for the deduction. While the guidance is needed, it adopts a record keeping requirement that effectively prevents most rental real estate activities from ever qualifying for the…
Avoiding Hobby Loss Limits for Long-Term Projects
Long-term projects often lose money. They often do so for several years. This is the result of a project that needs capital to build infrastructure or to develop a new market or to capture market share. Taxpayers may be disappointed to learn that the tax losses coming from these long-term projects in the early years…
Bad Debt Deduction for Real Estate Lender for Non-Real Estate Loan
In the world of finance and investing, making loans is often seen as a relatively safe way to earn a higher rate of return than other investment opportunities. For many individuals, this means venturing into the realm of real estate loans, where they can use their expertise to evaluate the merit of investment opportunities and…
Court Addresses Tax Losses from Short-Term Rentals
Short-term rental properties are more popular than ever. Online services like Airbnb have made this possible. But how are tax losses from short-term rentals handled? Can the taxpayer use the rental losses to offset their non-rental income for tax purposes? The court addresses one aspect of these rules in Eger v. United States, 18-cv-00199-DMR (N.D.…
Court’s Take on How to Avoid the Interest Expense Limitation
Interest one pays is generally deductible for income tax purposes. For real estate owners who borrow against the value of their properties, the interest expense deduction is often one of their largest tax deductions. This tax deduction can be limited. The court in Lipnick v. Commissioner, 153 T.C. 1 highlights how one might avoid this…
Taxpayer Cannot Recoup Attorney Travel Costs
If the IRS wrongfully denies your refund claim and you are successful in litigating the matter in court, you are entitled to recoup some of your court costs. But what about the taxpayer’s tax attorney’s travel costs? And what if the travel costs were necessary as the tax issue was complex and a tax attorney…
Reporting Debt Discharged in a Court Settlement to the IRS
There are some circumstances where information has to be reported to the IRS, even though the information does not trigger a tax. But the potential problem can be that the information reporting triggers an IRS audit or other consequences. The Form 1099-C, Cancellation of Debt, form can have this effect. In PLR 201927005 the IRS…