In the last ten years, too many taxpayers have sold real estate at a loss. How does this type of loss ultimately affect the amount of taxes owed to the IRS? First, to accurately determine the amount of a loss from disposition, compare the property’s sale price to its tax basis. The tax basis is generally the original purchase price, plus the cost of improvements (but not expenses deducted as repairs and maintenance) less depreciation.
Losses, Expenses and Interest between Related Taxpayers – Know The (Tax) Code: 26 U.S.C. §267
Congress, aware that related parties could create fictitious tax losses lacking economic substance based upon the related parties continued enjoyment of the property subject to the loss, enacted § 267 of the Internal Revenue Code to disallow certain losses and deductions on transactions between related taxpayers.
Tax on Capital Gains and Losses, Explained
A capital gain occurs when you transfer or sell a piece of property for more than its acquisition cost. To be more succinct, it’s the profit realized on the sale of a non-inventory asset. Capital gains are realized from the sale of all types of property, both real and personal such as investments and other traditional non-investment types of personal property. In the United States, with certain exceptions, individuals and corporations pay income tax on the net total of all their capital gains.
The Alternative Minimum Tax, Explained
Under the Internal Revenue Code and the vast body of rules and regulations related thereto, certain tax benefits can significantly reduce the amount of taxes that a taxpayer may owe. The alternative minimum tax (AMT) applies to those taxpayers with high levels of income by limiting these benefits and ensuring that these taxpayers pay at least a minimum amount of tax. If the AMT applies to you, you may lose many credits or deductions you would normally receive if you didn’t have to pay the AMT.
IRS Audits – What Are My Chances?
It’s considered by many taxpayers to be one of the most frightening events that could happen related to their everyday business affairs. What is this frightening event? An IRS audit, of course. But is a tax audit really that scary in real life? The numbers reveal that only 1% of all taxpayers experience an audit, and of this one percent, about one in five result in a meeting with the IRS.
Presently, the IRS audits half as many taxpayers as it did five years ago. However, the amount of tax recovered per audit has increased. The IRS uses an elaborate computer selection process, auditing only those returns which will almost certainly yield some adjustment.
You’ve filed your tax return, how long does the IRS have to audit you?
You’ve filed all of your tax returns, and because of your level of income you find yourself in the class of taxpayers whose return is more likely to trigger an IRS audit. So you wonder, how long does the IRS now have to audit you?
Due to disclosure requirements, the IRS makes contact with a taxpayer selected for an audit by telephone or mail only. When returns are filed, they are compared against norms for similar returns. These norms are developed from audits of a statistically valid random sample of returns, selected as part of the National Research Program conducted by the IRS to update return selection information.
Uber drivers – employees or independent contractors? (What’s the significance anyway?)
By now everyone is familiar with Uber. And in case you’re not, Uber is an online taxi dispatch company that uses its own mobile app that allows its customers to submit a trip request on their smartphones for drivers who then pick up riders using driver-owned vehicles.
Uber’s business is built on an independent contractor (IC) model, which in Uber’s case means that ideally, Uber drivers receive no benefits, use their own vehicles, and pay all expenses for gas, maintenance, and insurance. Twenty to twenty-five (20 to 25) percent of driver earnings are paid to Uber as a fee to use its service. Some estimate that this contractor model can save businesses up to 30% on labor costs.
If I convert a home to a rental, when can I deduct any losses related thereto?
Issue
If a taxpayer converts a home to a rental, when can the taxpayer deduct any losses related thereto?
Related Tax Rules or Regulations
Internal Revenue Code Section 262, which provides that except as otherwise expressly provided, no deduction is allowed for personal, living, or family expenses.
Internal Revenue Code Section 165 permits a deduction for any “loss sustained that is not otherwise compensated for.” In order for an individual to deduct such a loss, the loss must be incurred in a trade or business, be incurred in any transaction entered into for profit, though not connected with a trade or business, or arise from some sort of casualty or theft. If such property purchased or constructed as a primary residence if, before its sale, it is “rented or otherwise appropriated to income-producing purposes and is used for such purposes up to the time of sale.”
Who qualifies as a real estate professional for tax purposes?
Issue
Who qualifies as a real estate professional for tax purposes? More specifically, how does a taxpayer establish that he or she materially participate in rental activities, so that the rentals become non-passive, and any losses can be used without limitation?
Related Tax Rules and/or Regulations
Internal Revenue Code Section 469
Facts
Escalante earned income from teaching and his ownership of rental properties that he managed himself. His teaching contract required him to work a minimum of six hours per scheduled work day. As is customary with this type of contract, it contemplated that there would be a substantial number of hours spent outside the classroom engaging in tasks and activities like lesson planning, grading papers, parent-teacher consultations, and faculty meetings.
DEDUCTING TRAVEL EXPENSES RELATED TO YOUR JOB
Everyone at one time or another has wondered about deducting their work-related expenses from their income in order to pay lower taxes. Especially those expenses related to travel, whether these trips and excursions are to and from work or out-of-town. Federal law, specifically the Internal Revenue Code (“Tax Code”), allows individuals to deduct qualifying business expenses. What, if any, of a working taxpayer’s expenses related to travel are deductible as a business expense under the Tax Code?