Wednesday, January 24, 2007

April 17 is the 2007 Tax Filing Deadline

Category: Tax Law and Planning

The IRS announced today that taxpayers will have until Tuesday, April 17, to file their taxes this year. This is because "April 15 falls on a Sunday in 2007, and the following day, Monday, April 16, is Emancipation Day, a legal holiday in the District of Columbia."


Thursday, January 18, 2007

Played the market this year? Can you report it right on your Tax Return?

Category: Tax Law and Planning, Financial Planning

Did you buy, sell, or trade stocks in 2006? Planning on doing it in 2007? Did you remembers that you need to record each and every sale on your income tax return? Many investors expect that their end of year statement from their broker will give them everything they need to file their taxes - this is not necessarily true. Your year end statement will give you the sales price, but will not necessarily provide you with all the other key information necessary to file your return. As an investor, it is your responsibility to know the following for each and every security sold to properly reflect the transaction on your tax return:
  • Name of the security
  • Your cost basis (ie: what you paid for it, adjusted by splits, etc.)
  • What you sold it for
  • Date of sale
  • Gain or Loss (sales price - adjusted cost basis)
If you were a successful investor in 2006, but didn't track this information well, April 15th may present a headache this year. But luckily, this headache is avoidable in future years if you track your purchases and sales as you make them - then all you need to do is print out the spreadsheet, and voila, taxes done.

Monday, January 08, 2007

Empirically - NJ Property Taxes have Skyrocketed (its not just you)

Category: Tax Law and Planning

From the New Jersey Star Ledger January 7, 2007:
Property taxes balloon despite push to reform: "As lawmakers scrambled to enact a property tax reform plan last year, the problem grew by a record $1.4 billion, a Star-Ledger analysis has found.

Local government agencies hit landowners with a $20.9 billion levy in 2006, of which $15.4 billion was billed to homeowners. That pushed the average residential tax bill up 6.8 percent to $6,170 -- an increase of $390.

In the mid-1990s, the state's property tax levy -- the total amount collected to run local government and schools -- took three years to rise by a similar amount. But with costs increasing and aid from Trenton relatively flat, local officials have passed more than a billion dollars of their costs onto landowners every year since 2002.

The largest increase prior to 2006 was $1.2 billion in 2003."


"In 2000, only six communities had an average property tax bill over $10,000. Now, homeowners in 55 towns can expect to pay five-figures to support schools, police and other local services, according to the analysis."

A proposed solution is: "The short-term fix is a tax credit of up to 20 percent for those earning $100,000 or less, with smaller reductions for those earning between $100,000 and $250,000." However, the dollar limitations on income are likely to mean that those with the 5 figure tax bills will not see any real relief.

Thursday, January 04, 2007

Retirement Accounts and Beneficiary Designations - Myths and Misconceptions

Category: Estate Planning, Tax Law and Planning

At the start of the new year, many people take a look at their qualified retirement plans (IRA, 401(k), etc.) as they plan savings goals for the new year. But what if you aren't the one getting the benefits, because you have died? How are the benefits getting to your family? Below is a list of some Myths and Misconceptions about Retirement Plan benefits (which can also be thought of a as a list of what NOT to do).

  1. My Retirement Plan is distributed the same as my Will. WRONG! Your Retirement Plan is distributed according the Beneficiary Designation you complete for each Retirement Plan.

  2. If I don't name a Beneficiary, my Retirement Plan will be distributed to my Estate. MAYBE. Some Retirement Plans say that if there is no beneficiary, it will pass to your Estate. Others give a list of people who will receive the plan in order of priority (spouse, children, etc.). However, if a Retirement Plan is payable to your Estate, there are negative income tax consequences (remember - you haven't paid any income taxes on these assets yet) that are best avoided. Also, for domestic partners or similar, there are never any default provisions for payment to the surviving partner - a Beneficiary Form must be completed.

  3. If my spouse is named as Beneficiary and we are divorced, she is automatically no longer the Beneficiary. WRONG! Unless you act to change your Beneficiary Designation, your ex-spouse is still your primary beneficiary - not a situation you want to be looking down on from the great beyond. File the Change of Beneficiary when you file for separation.

  4. If my minor children are named as Beneficiaries, and I created a trust for them in my Will, then the Retirement Plan will be distributed subject to those trust terms. WRONG! Unless you name the trust created for your children as the Beneficiary of the Retirement Plan, your darling angels will get access to all the Retirement Plan funds at the mature age of 18 (or 21).

  5. I know who are my Designated Beneficiaries. MAYBE. Many times a person thought they filed out a Beneficiary Designation, but didn't, or thought they named Contingent Beneficiaries, but didn't, or thought they named a trust for this children, but didn't. You should check or change your Beneficiaries today. A Change of Beneficiary form can usually be downloaded right from the website holding the assets.

Wednesday, August 02, 2006

NJ Real Estate Tax Rebate Filing Extended to October 31

Category: Tax Law and Planning

In NJ, the state with the most out of control property taxes in the Union, there is a plan known as "NJ FAIR" (I make no comments on the name). The purpose of the program is to give a property tax rebate to home-owners and tenants.

All NJ homeowners should have recently received an package in the mail with instructions for calling in to file for the rebate. The rebate can also be filed online. NJ tenants can file a Form TR-1040, FAIR tenant rebate application, either by paper or online. For more information, residents and tenants should go the the New Jersey Division of Taxation.

You can check the status of your rebate filing online as well.

What will all this filing get you? Anywhere between $200 and $350 if you are under 65, and don't have income greater than $200,000; and between $500 and $1200 if you are over 65, and again don't have income greater than $200,000. See Chart Here.

Monday, July 31, 2006

New NJ Tax on Purchase Commercial Real Estate

Tax Law and Planning

Starting August 1, purchasers of commercial real estate for more than $1,000,000 will have an additional tax, or "fee", to contend with. Chapter 33, Laws of 2006, calls for a 1% fee to buyers of commercial property purchased for over $1 million. This brings the fees for purchasing commercial real estate in line with the purchase of residential real estate, which for several years has been subject to a "mansion tax" of 1% to buyers of residential property valued at more than $1 million. Sellers of property will still need to contend with the Realty Transfer Tax, regardless of whether buyers are subject to the additional 1% fee.

There will be several exceptions to the 1% fee on transfer of commercial property:

* Where the real property transfer is incidental to a corporate merger or acquisition, if the real property value represents less than 20% of the total assets subject to the merger or acquisition.

* The purchaser is recognized by the IRS as exempt from income tax (ie: a public charity or private foundation).

The 1% fee also applies in certain non-deed transfers. For example, if a controlling interest in an entity that owns commercial real estate valued at more than $1 million is transferred, then the buyer will pay the 1% fee. This would apply, for example, if an LLC owned commercial real estate valued at more than $1 million, and the LLC itself was sold.

For more information, see the Division of Taxation Website.

Friday, July 21, 2006

Estate Tax Repeal Defeated Again (Who knew they were voting?)

Category: Estate and Inheritance Tax

Last night the US Senate again addressed the total repeal of the estate tax.

First question - why all the silence? Where was the press push and fanfare of the last vote attempt? Where was the opportunity for public debate and communication with representatives before the vote? I could not have been more surprised this morning that total repeal of the estate tax had been brouhght to a vote again.

Democrates in the Senate filibustered the vote to totally repeal the estate tax, in the Senate Republicans again fell shy of the 60 needed to break the filibuster. The vote was 57-41.

What's next? Putting Estate Tax Repeal/Reform into a revised Pensions Law. According to the Office of Senate Democratic Leader Harry Reid:

WASHINGTON, July 20 /U.S. Newswire/ -- With reports that Republicans are working to sneak billions of dollars in estate tax giveaways into the Pensions Conference Report, Senate Democratic Leader Harry Reid released the following statement:

"For over four months, American workers, retirees and businesses have been waiting patiently for the Republican Congress to deliver a pensions bill that will provide retirement security to millions of Americans. Now, instead of delivering those workers a clean bill, Republicans are desperately trying to satisfy a privileged few by providing them hundreds of billions in additional estate tax breaks. Fiscally irresponsible estate tax giveaways have been rejected by the Senate before and will be rejected again. We need a Congress that works for all Americans, not one that abuses the system to satisfy the special interests. I hope my Republican colleagues will move in a new direction by dropping the estate tax giveaway so we can quickly pass the pensions conference report. It is time to put American workers before special interests."

Monday, July 17, 2006

NJ 7% Sales Tax Effective 7.15.06

Category: Tax Law and Planning

As of 7.15.06, the New Jersey Sales Tax rate to be collected by local businesses is 7%. Sales tax violations have always been aggressively pursued by New Jersey, and claiming ignorance regarding the increase will likely not act to waive tax payment, penalties and fines. See the Department of Taxation Notice Here.


For more information, visit the NJ Department of Taxation. And keep going back, as new categories of goods and services that were previously exempt from sales tax will be subject to sales tax starting October 1, 2006.

Tuesday, June 13, 2006

Some Summertime Tax-Cutters to Consider

Category: Tax Law and Planning

From James A. Jimenez, CPA, partner at Fass & Co. in Parsippany, NJ:

"Take Advantage of Some Summertime Tax-cutters

Make your summertime fun even more enjoyable by adding tax savings. With some advance planning, you can make it happen. Here are some tax-saving ideas.

If you have summer travel plans and the primary purpose of your trip is business, you can deduct all the travel costs to and from your business destination and all other business-related costs even if you add on a few extra days for pleasure. You can’t deduct costs related to the pleasure portion.

Including a spouse or friend on your trip is permissible, but you can’t deduct the additional costs for that person. For example, the added cost of a double room over a single room won’t be deductible. Be sure to keep track of your itinerary, as well as your receipts, so you can clearly establish the business purpose of your trip and support your deductions.

If you own rental property, the expenses you incur to inspect your investment are deductible. These would include your travel expenses, lodging, and 50% of your meals.

If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation.

If you and your spouse work, the cost of sending your children to a summer day camp may qualify for the child care credit.

If you own a business, consider hiring your child for the summer. Your child can earn up to $5,150 tax-free this year, and your business is entitled to a deduction for the wages paid. You must pay your child a reasonable wage for the work performed. If your business isn’t incorporated, a child under 18 is not subject to FICA taxes. "

Friday, May 12, 2006

Tax Breaks - Roth IRA, 15% Capital Gains and Dividends, AMT

Category: Tax Law and Planning

From Wills, Trusts & Estates Prof Law Blog May 10, 2006:

Status of Tax Reconciliation Package
The United States Congress is in the final stages of its work on tax reconciliation legislation. Below are some of the highlights of the current version of the bill as reported in Jeanne Sahadi, Tax bill agreement reached,, May 9, 2006:

  • IRA Conversion. The bill would allow traditional IRAs to be converted to
    Roth IRAs even if the taxpayer's adjusted gross income is over $100,000.
    This provision may actually raise revenue because IRA holders would be required
    to pay tax now, that is, at the time of the conversion.
  • Long-term capital gains and dividends tax rate to remain at 15% for two more
    years (that is, through 2010).
  • Enhanced relief from the alternate minimum tax.
And from May 12, 2006:

Yesterday, May 11, 2006, the Senate approved the [tax cut] bill 54 to 44. On Wednesday, May 10, 2006, it passed the House. Accordingly, it is now being sent to President Bush who is expected to sign the legislation.

See Edmund L. Andrews, Senate Approves 2-Year Extension of Bush Tax Cuts, NY Times, May 12, 2006.

Tuesday, April 25, 2006

What is the Surviving Spouses Taxable Gain on Sale of Home?

Category: Tax Law and Planning

A very common question is: If my spouse dies and I sell the house, what is my cost basis? Cost basis is important because Purchase Price - Basis = Gain (which is the Amount subject to Capital Gains Tax). The except below from This old house: cost-basis riddle -- is an excellent example of answers to that question.

However, cost basis is not the only issue. Once the Amount subject to Capital Gains Tax is determined, the next question is "What exclusions to Capital Gains Tax are there?" Under Internal Revenue Code Section 121, a single person can exempt the first $250,000 of Gain from the sale of his or her residence from tax (assuming the person has resided in the house for at least 2 years). This doubles to $500,000 for married couples.

So, if a surviving spouse is ever looking to sell the residence (no matter when the deceased spouse died) the questions are:

1 - What is the surviving spouse's Cost Basis in the house (see the examples below to calculate); and
2 - Is this Gain less then the Section 121 exemption available (if so, no tax).

"Imagine Fred and Ethel buy a house in 1982 for $135,000. In 2005, Fred dies and Ethel inherits the house, now worth $550,000. To calculate her profit when she sells it, she subtracts what the house cost - her 'cost basis' - from the $550,000 sale price. Current law says Fred and Ethel each had a 50 percent ownership stake in the house. Her cost basis on her own half is $67,500 - half of the original $135,000 purchase price. But her cost basis on Fred's half is its market value at the time of his death - $275,000 (half of $550,000). Her total cost basis: $342,500.

But before 1977, the law presumed that the spouse who died first owned 100 percent of the house, says Alan E. Weiner, senior tax partner at Holtz Rubenstein Reminick in Melville. Unless the surviving spouse could refute the presumption, the house was included in the deceased spouse's estate and the survivor inherited it at its market value. (The husband, usually the first to die, was also usually the only working spouse. 'It's unclear how the law would work if the first to die was a wife who hadn't contributed to the purchase of the house,' Weiner notes.)

Let's say Fred and Ethel bought their house in 1960 for $17,000. When Fred died in 2005, it was worth $450,000. Under the pre-1977 law, the entire $450,000 is included in his estate. No additional estate tax is due, however, because spouses inherit from each other tax-free. Ethel has inherited 100 percent of the house; her cost basis is $450,000.

The IRS says the old law still applies in cases involving marital joint property acquired before Jan. 1, 1977. It has said it will no longer litigate such cases. (For more details, go to"

Thursday, April 20, 2006

The Cost of Gifting Your Home

Category: Elder Law, Estate Planning, Tax Law and Planning

This brief article from outlines why there may be a large cost of making a gift of your home to your children now, instead of continuing to live in it an bequeathing it to your children at your death.

"First and foremost, your child or friend's basis in the house will be what you paid for the property, plus major improvements. Because this cost you paid years ago is probably much lower than today's soaring home value, there's a chance tax will be owed on a subsequent sale.

For example, if you purchased your home in 1970 for $60,000 and it is now worth $450,000, your child's basis would be $60,000 if you chose to transfer the home to the child as a gift. If the married child sells the home 10 years down the road for $760,000, their tax liability would be on $200,000 ($760,000 minus the $60,000 basis, minus the $500,000 exclusion for married couples). Taxpayers in the 15 percent tax bracket would thus owe the Internal Revenue Service approximately $30,000 in capital gains tax."


If the child did not live in the house, there would not be a "$500,000 exclusion for married couples" as outlined above. That only applies if the child and his or her spouse lived in the house for 2 years or more before sale. If you gifted the house to a child and you continued to live there, upon sale the child's basis would only be $60,000, leaving $700,000 subject to capital gain.

Also, while the federal capital gain tax rate is generally 15%, the state may have an additional capital gain rate. For example, in New Jersey, the capital gain rate is 7 1/2%, bringing the total combined capital gains tax rate to 22 1/2%, which on a $700,000 sale would be $157,500 - not chump change.


First, for Medicaid planning it may be worth the potential capital gains tax cost to remove the asset from your "available assets" so that the house does not have to be sold to provide for your long term care.

Second, it is possible to gift part of the house now, and keep enough of it to get a "step-up in basis" at your death. For example, if you give away the house, but retain the right to live there during your lifetime (a "life estate"), then the house will be part of your taxable estate. This means that your children's basis in the house upon your death would be the date of death value, $760,000 in the above example. Thus, if the children sold the house for $760,000, there would be no capital gain. But beware of the trap that keeping the asset in your taxable estate may cause an estate tax issue (New Jersey's estate tax exemption is only $675,000) just to avoid a capital gains tax issue. (A last point that here the NJ estate tax rates, which range up to 16% on amounts over $675,000 would be far less then the combined federal and state capital gains rates of 22.5% on $700,000 of gain.)

Monday, April 10, 2006

Can't Pay Your Taxes? Ignoring it is NOT the Answer

Category: Tax Law and Planning

We talked about what happens if you aren't ready to file by April 15th (17th this year), but what if you can't pay your taxes?

Don't ignore your tax obligation - it won't go away. In fact, it will just get larger, with the addition of interest and penalties.

The penalties for failure to file are seperate from the penalties for failure to pay. So even if you can't pay, you should file your return (or an extension as discussed earlier this week in _---) and address the payment issues seperately.

From Rubin on Tax: WHAT IF YOU CAN'T PAY YOUR INCOME TAXES BY APRIL 17?: "Here are some ideas to avoid the penalties (and interest, if the tax can be paid):

a. Borrow the tax payment from friends or family.

b. Bank loans (including home equity loans).

c. Credit card payment (where allowable by the credit card issuer). However, these providers charge a 2.49% fee, plus their usual interest.

d. Request an installment payment agreement from the IRS (using Form 9465). There is a $43 fee for these agreements. Interest is still charged on the unpaid tax, but the late payment penalty is reduced by 50% if the return is filed by the due date (including extensions).

e. Possible qualification for a 120 day extension to pay, or a payroll deduction installment agreement with the IRS. "

Tuesday, April 04, 2006

Extension of Time to File Your Tax Return (You Still Have to Pay

Category: Tax Law and Planning

The clock is ticking towards April 15th (actually, April 17th this year). If you haven't filed your tax return by now, you may want to consider the reality that you won't be able to file it on-time at all. To avoid the stress and headaches of last minute filing (and the long lines at the post-office) you may want to consider filing an Extension of Time to File. You can get an automatic 6-month Extension of Time to File by completing a Form 4868.

This is NOT a reprieve from paying your taxes - those must still be paid on or before April 17 to avoid interest and penalties.

For more information look at Extension of Time to File Your Tax Return from

Extension of Time to File Your Tax Return

Need more time to prepare your federal tax return? This page provides information on how to apply for an extension of time to file.

Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability.

Extensions for Individuals
If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return (51K) Adobe PDF, by the due date for filing your calendar year return (usually April 15) or fiscal year return. This form is also available en español.

Special rules may apply if you are:
living outside the United States
out of the country when your 6-month extension expires, or
serving in a combat zone or a qualified hazardous duty area.

You can also go to Filing Information in Publication 17, Your Federal Income Tax (HTML page), for more information regarding the rules for automatic extensions and filing federal individual income tax returns."

Monday, March 06, 2006

Don't Overlook Valuable Tax Credits

Category: Tax Law and Planning

Courtesy of James Jimenez, CPA of Fass and Associates in Parsippany, New Jersey:


Tax credits are one of the most powerful ways to lower your income tax bill. A tax credit reduces your taxes dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket. For example, a tax deduction of $1,000 will lower your tax bill by $280 if you are in the 28% tax bracket. A $1,000 tax credit will lower your tax bill by $1,000. Here are some of the most common tax credits; most are subject to income limits.

Child credit. Taxpayers who have dependent children under age 17 may be eligible for a child tax credit of $1,000 per child.

Dependent care credit. Expenses paid for the care of dependent children under 13 and certain other dependents may qualify for a tax credit.

Education credits. Qualified college and vocational school expenses for eligible students may qualify for a credit. Under the Hope credit, up to $1,650 per student can be claimed for tuition and fees paid during the first two years of post-secondary education. Under the lifetime learning credit, up to $2,000 per family is available for post-secondary education expenses and for education expenses to acquire or improve job skills.

Earned income credit. This credit is intended for low-income taxpayers. The size of the credit depends on the amount of your earned income (wages and self-employment income), investment income, and your filing status.

Adoption credit. A credit of up to $10,960 per child is available for qualified adoption expenses.

Business credits. There are a number of credits that are specifically available to businesses.

Wednesday, February 01, 2006

Tax Deductions Not to be Forgotten About - Look here before you file

Category: Tax Law and Planning

Courtesy of James Jimenez, CPA of Fass and Associates in Parsippany, New Jersey:

Don’t Miss These Often Overlooked Deductions

If you itemize deductions on your tax return, every additional deduction you find will save you money. Here’s a sampling of often-missed deductions. As you review the list, be aware that certain miscellaneous deductions are deductible only to the extent they exceed 2% of your adjusted gross income (AGI), and medical expenses are deductible only to the extent they exceed 7.5% of your AGI. Also, itemized deductions are limited for higher-income taxpayers.

Often-missed deductions:

  • Disaster losses not reimbursed by insurance.
  • Job-hunting travel and telephone expenses.
  • Employment agency and job counseling fees.
  • Costs for resume preparation.
  • Union or professional association dues.
  • Specialized work clothing or small tools used at work.
  • Points paid by you on a new home loan.
  • Points paid by a seller on your behalf.
  • Points paid on refinancing your home mortgage (deductible pro rata over the life of the loan).
  • Remaining undeducted points on a prior refinancing when you refinance again.
  • Your actual expenses or 14¢ a mile for driving in doing charitable work (larger deduction if driving is in conjunction with 2005 hurricane charity work).
  • Gambling losses, but only to the extent of your winnings.
  • Fees paid for the preparation of your tax return. "

And an extra from me, certian legal fees.

Tuesday, January 24, 2006

Waiting for your Refund?- IRS to Review Anti-Fraud Program the Freezes Refunds

Category: Tax Law and Planning

From Yahoo News: IRS to Review Anti-Fraud Program - "WASHINGTON - IRS Commissioner Mark Everson ordered a review Tuesday of a tax fraud detection program criticized for freezing thousands of refunds without notifying taxpayers.

Everson said the tax agency will soon announce new procedures to advise taxpayers when a refund has been frozen. The agency will also revise its fraud screening procedures so that it withholds fewer refunds owed to innocent taxpayers."

Of course, why are you expecting such a large refund in the first place? One way to look at a refund is an interest free loan to the government. After all - all a refund is is a return of your own money that you haven't been able to spend because you voluntarily gave too much to the government in taxes. See my prior post Review your withholding - A Tax Refund is an Interest Free Loan to the IRS about adjusting your withholding to maximize your paycheck.

The article goes on to claim that: "Refunds claimed on tax returns determined to be fraudulent remain frozen for a number of years until the IRS sees the taxpayer file a number of legitimate returns.

The tax agency said it's fighting a rising tide of refund fraud, which it now estimates to be more than $500 million a year. A significant portion involves false earned income tax credit claims, which can amount to $4,400 on a tax return, the IRS said.

Nearly 75 percent of the pool of frozen refunds studied by the taxpayer advocate were low-income families claiming the earned income tax credit, designed to reduce poverty among the working poor.

The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny. The IRS said about 200,000 refunds are held longer than a week, but many of those can be held for months or years."

The IRS admits is does not normally inform taxpayers they are suspected of fraud during the time they are investigating the return - with the result that unless you keep pushing for where your refund is, you may not know why you don't have it.

Having said that, statistics show that the frozen refunds are only a drop in the refund bucket: "The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny."

Monday, January 09, 2006

Is the AMT Coming to get You??

Category: Tax Law and Planning

Much has been written about how the Alternative Minimum Tax (AMT) - including my prior post: AMT - What is it and Why Should You Care?. This parallel tax to the income tax was originally designed to capture very-high income taxpayers and ensure that they pay their fair share by limiting their deductions. Unfortunately, it has been creeping down the tax brackets over the years, until it is now a tax faced by more and more taxpayers.

Don't laugh, but the IRS is coming to your assistance in answering the question "Do I owe AMT?". At the IRS Website at there is an "AMT Assistant" - a tool designed to determine whether or not you might be subject to the AMT. The instructions claim: "Most people using the AMT Assistant can complete the AMT worksheet using this tool in 5-10 minutes."

The US tax system is self-reporting, so you the taxpayer need to know not only what taxes you are subject to, but the liability generated by those taxes.

Thursday, January 05, 2006

One Trust, Two Trusts, Can you Merge Trusts?

Category: Estate Planning, Tax Law and Planning, Probate and Estate Administration

From the blog Rubin on Tax, a summary of PLR 200552009, issued December 30, 2005, discussing the tax consequences of two trusts with similar trust merging for administrative reasons (who wants to administer and pay administration expenses on 3 trusts when you can do it for just one?):

"In a recent Private Letter Ruling, the IRS provided that where several identical trusts combined into one trust with similar terms, and all the trusts held similar assets, the merger would not generate gain or loss to the trusts or their beneficiaries. The IRS further went on to provide that the tax attributes of the trusts merged into the new trust, such as net operating loss carryforwards and tax basis, would carry over to the new trust."

Note that a private letter ruling or PLR is only authority for that taxpayer, and cannot be relied upon by any other taxpayer. However, it is an example of the IRS's analysis of certain issues.

In doing estate planning, consider how well the distributive terms of any irrevocable trust you create, such as a life insurance trust or ILIT, match the distributive terms of your Will, or other testamentary document. To the extent that the trust terms for your children match, for example, then the Trustee may be able to combine the insurance trust with the trust created under your Will and only administer one trust per child. The key to being able to match these terms over time is to give someone a power over your irrevocable trusts to modify the distribution terms to the beneficiaries, so that as you modify your will over time, the trust terms can follow.

Wednesday, January 04, 2006

Key 2005 Tax Filing / 2006 Tax Payment Deadlines

Category: Tax Law and Planning

From James Jimenez, CPA, of Fass and Associates:

"Mark These Tax Deadlines in Red

Circle these dates on your 2006 calendar if any of the following upcoming tax deadlines apply to you or your business.

January 17 – Due date for the fourth and final installment of 2005 estimated tax (unless you file your 2005 return and pay any balance due by January 31).

January 31 – Employers must furnish 2005 W-2 statements to employees. 1099 information statements must be furnished to payees by banks, brokers, and other payors.

January 31 – Employers must generally file 2005 federal unemployment tax returns and pay any tax due.

February 28 – Payors must file information returns (such as 1099s) with the IRS. (March 31 is the deadline if filing electronically.)

February 28 – Employers must send W-2 copies to the Social Security Administration. (March 31 is the deadline if filing electronically.)

March 1 – Farmers and fishermen who did not make 2005 estimated tax payments must file 2005 tax returns and pay taxes in full.

March 15 – 2005 calendar-year corporation income tax returns are due.

April 17 – Individual income tax returns for 2005 are due unless you file for an automatic extension. Taxes owed are due regardless of extension.

April 17 – 2005 partnership returns are due.

April 17 – 2005 annual gift tax returns are due.

April 17 – Deadline for making your 2005 IRA and education savings account contributions.

April 17 – First installment of 2006 individual estimated tax is due.

June 15 – Second installment of 2006 individual estimated tax is due.

September 15 – Third installment of 2006 individual estimated tax is due.

October 16 – Deadline for filing your 2005 individual tax return if you filed for an extension of the April 17 deadline. "

Wednesday, December 28, 2005

Tis the Time For New Year's Resolutions

Category: Elder Law, Estate Planning, Business Law and Planning, Tax Law and Planning, Financial Planning

Ah, the presents have been opened, you have been eating cookies and leftovers for days, and the commute is remarkably smooth this week - it must be the week before New Years. With each New Year comes New Year's Resolutions - those things you are absolutely and positively going to do in 2006 (or meant to do in 2005 or 2004 - lets be honest). Some thoughts to consider for 2006's list:

  • Don't have a Will, Power of Attorney or Living Will? Get one. Search through prior posts here for some consequences of failing to plan. See the article Make a will: Your #1 family New Year's resolution for more reasons to plan.
  • Have a Will? Haven't looked at it in 5 years or more? Get it out, dust it off, and read it. Does it say what want? Do you understand it? If not, call an attorney and have it reviewed.
  • Own a business? Get a business succession plan in place. Without a business succession plan, your family is likely to receive pennies on the dollar for the value of your business at your death.
  • Got insurance? Review your insurance - health, disability, life, long-term care, property. Are you really covered for your needs? Do you understand your coverage? Have you had your insurance reviewed by a professional in the past 3 years or so? Insurance can be a large annual outlay - you should be sure you are getting the best return for your investment. Most professional insurance agents will give you a free review.
  • Planning to retire? How are you financing your plan? A meeting with a financial planner may give you ideas as to how good of a job you are doing getting to where you want to be. Again, the meeting is likely to be free.
  • Kids going to college? Do you have a plan beyond hoping that there will be enough equity in your house in interest rates stay low? Look into a 529 Plan (try for more information) . See what a financial planner has to say.
  • Have an accountant? Can him or her and make a meeting to discuss your tax profile and ideas to reduce taxes - note that dropping a bag off at the office on April 8 is not a meeting. Your accountant is an expert,particularly with income taxes, those most likely to effect you. Why not take the time to reduce the governments share of your earnings? Call TODAY for last minute year end planning items (see Happy new year! Now, call your accountant )
  • Don't have an accountant? Consider whether a tax professional could help you pay less. You still have time before December 31 to change your tax profile for 2005. (See 5 Year-End Tax Tips and Year-End Tax Tips from ABC News)
  • Have seniors in your family? Consider how they are doing and ways you can help. Would Medicare D save them any money? Go the AARP website for tools to find out the answers. Could they use help with driving, cooking, housekeeping? Consider a service (and speak to your accountant about the tax deductions). Are they safe and secure in their homes? If not, consider alternates within the family and in the community.

None of these thoughts are sexy or exciting, but they do fall under the heading of things a responsible adult should be doing, and items high on this years New Years Resolutions (otherwise known as The Great To Do List).

Thursday, November 10, 2005

Life Cycle of a Public Charity

Category: Business Law and Planning, Tax Law and Planning

Often a client approaches us to set up a charity. A public charity must benefit the public, that it, some objectively defined group of persons for a public purpose. Once formed, the charity must then apply for and receive recognition as a public charity - the most common are 501(c) charities, so called to refer to the Code section under which they are organized. For federal tax purposes, a person can only deduct contributions to an entity that has been recognized as a public charity by the IRS. Once formed and approved by the IRS, the public charity must comply with various reporting requirements. Of course, being a charity, the organization is also usually looking to minimize its legal and accounting expenses.

The IRS has taken some of the mystery out of forming and being a public charity through a section of its website called Life Cycle of a Public Charity.

"During its existence, a public charity has numerous interactions with the IRS - from filing an application for recognition of tax-exempt status, to filing the required annual information returns, to making changes in its mission and purpose. The IRS provides information, explanations, guides, forms and publications on all of these subjects - they are available through this IRS Web site. The illustration below provides an easy-to-use way of linking to the documents most charities will need as they proceed though the phases of their "life cycle."

There is also a one page a graphical depiction of the life cycle of the public charity, which includes functioning links back to various forms and publications.

Monday, October 31, 2005

2006 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits

Category: Estate and Inheritance Tax, Tax Law and Planning

From the IRS, a quick summary of some inflation adjustments to 2006 tax planning. Revenue Procedure 2005-70 contains a complete list of all 2006 inflation adjustments.

2006 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits

WASHINGTON - Personal exemptions and standard deductions will rise, tax brackets will widen and individuals will be able to make larger tax-free gifts in 2006, thanks to inflation adjustments announced today by the Internal Revenue Service.

By law, a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being modified for 2006. Key changes affecting 2006 returns, filed by most taxpayers in early 2007, include the following:

The value of each personal and dependency exemption, available to most taxpayers, will be $3,300, up $100 from 2005.

The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles and $7,550 for heads of household. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket will be $61,300, up from $59,400 in 2005.

The annual gift tax exemption will be $12,000, up from $11,000 in 2005.
Revenue Procedure 2005-70, containing a complete rundown of inflation adjustments, is posted on the IRS Web site and will appear in Internal Revenue Bulletin 2005-47, dated Nov. 21, 2005.

Friday, October 28, 2005

Judge Orders IRS to Pay $23 Mil in Taxes and Interest

Category: Tax Law and Planning

From Yahoo News....a win, but not exactly for the little guy:

Judge Orders IRS to Pay Buffett's Firm - Yahoo! News: "A federal judge on Friday ordered the Internal Revenue Service to pay billionaire Warren Buffett's investment company more than $23 million in taxes and interest for disallowing certain deductions.

The ruling by U.S. District Judge Lyle Strom ended some three years of legal wrangling between Berkshire Hathaway Inc. and the IRS.

The case stemmed from two lawsuits that alleged the IRS made an 'erroneous, wrongful and illegal' interpretation of the U.S. Tax Code when it denied the deductions."

Thursday, October 20, 2005

Katrina (and other disasters) Tax Relief Act - You can be Generous with Charitable Gifts

Category: Tax Law and Planning

In order to help charities assisting in the Hurricane Katrina relief, Congress recently passed the Katrina Emergency Tax Relief Act (KETRA) which allows unlimited gifts to charity up to a donor's total income until the end of 2005. Normally, there are percentage of income limitations on charitable deductions.

KETRA Qualifying cash gifts must be made between August 28, 2005 and December 31, 2005 to a public charity. For individuals, the contribution does not have to be earmarked for Hurricane Relief.

If you are over 59 1/2 and considering making a large charitable contribution this year, consider withdrawing money from and IRA, 401(k), 403(b), or other qualified retirement account, to make the gift. Generally, withdrawals from qualified retirement accounts are subject to income tax in the year made. Under the normal tax code, the charitable contribution deduction to a public charity is limited to 50% of your income. Accordingly, when you make a withdrawal from a qualified plan and donate the entire amount to charity under the normal rules, you must pay tax on 50% of the withdrawn amount, even though 100% went to charity. Under KETRA, 100% of a qualified plan withdrawal that passes to charted may be deducted.

For more information on Katrina tax relief, see the IRS website.

Wednesday, October 19, 2005

Are you Missing Education Tax Breaks?

Category: Tax Law and Planning

From James Jimenez, CPA of Fass and Associates, CPAs:


A recent report by the Government Accountability Office pointed out that 27% of 1.8 million taxpayers eligible for education-related tax breaks did not take advantage of them on their income tax returns. As a result, they paid from $169 to over $500 more in taxes than necessary.

If the complexity of the tax credits and deductions for education expenses is keeping you from claiming them, you, too, may be paying higher taxes than necessary. With a little effort, you can get the details and advice you need to make the wisest choices for your particular situation. Here’s a brief rundown of what’s available.

* Education savings accounts let you set aside up to $2,000 per year per child in a tax-deferred account for elementary, secondary, or higher education expenses at either private or public schools.

* Section 529 plans include tax-favored college savings plans and prepaid tuition accounts. Tax-free withdrawals can be used to pay for tuition, fees, supplies, equipment, and certain room and board expenses.

* The college expense deduction lets you deduct up to either $2,000 or $4,000 (depending on your income) for tuition and related college expenses. If you qualify, you can deduct these expenses whether or not you itemize

* Student loan interest of up to $2,500 is deductible, subject to income limitations.

* A Hope credit of up to $1,500 per student can be claimed for tuition and fees relating to the first two years of post-secondary education.

* A lifetime learning credit of up to $2,000 per family can be claimed for post-secondary education expenses and certain job-related courses."

Tuesday, September 20, 2005

AMT - What is it and should you care?

Category: Tax Law and Planning

A client came in yesterday and his questions turned to concern about the Alternative Minimum Tax or AMT. My first response - see your accountant. On further thought, I was considering how misunderstood and under-publicized the AMT is and looked for some resources for a better understanding. I found this Guide to the AMT as a sort of AMT for Dummies. It has helpful subtopics like Alternative Minimum Tax 101 and Top 10 Things that Cause AMT Liability.

As to why you should know about and care about the AMT? The fact is that the number of taxpayers that the AMT reaches is growing each year due to the reach of the AMT expanding downward to taxpayers with lower incomes. Many taxpayers who don't owe AMT still need to go through the calculation, at additional time and expense. Also, if you find yourself owing AMT, some traditional tax strategies that work in a non-AMT environment may not benefit you in an AMT environment.

The Guide to the AMT explains the AMT as follows:

"The alternative minimum tax (or AMT) is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. But for various reasons the AMT reaches more people each year, including some people who don't have very high income and some people who don't have lots of special tax benefits. Congress is studying ways to correct this problem, but until it does, almost anyone is a potential target for this tax.

The name comes from the way the tax works. The AMT provides an alternative set of rules for calculating your income tax. In theory these rules determine minimum amount of tax that someone with your income should be required to pay. If you're already paying at least that much because of the 'regular' income tax, you don't have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax."

Friday, September 09, 2005

Savings Bonds (Part 2) - What Happens when the Bond Owner Dies?

Category: Estate and Inheritance Tax, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Savings bonds are a ubiquitous asset. However, dealing with savings bonds as part of an estate can in many ways be more complicated then dealing with other investment assets, such as mutual funds, stocks and bonds, where a broker can coordinate transfer and liquidation efforts. In a prior post Saving Bonds (Part 1) - Learning More about those Bonds - I discussed resources to learn more about the value of any bonds. Here, we are looking at what to do with the bonds as part of an estate, or if you inherit bonds as a result of a person's death.

A few general rules, regardless of what series of bonds (E/EE, H/HH or I):

  • Single Ownership: If the savings bonds are owned by one person, and that person dies, the bonds are now owned by the person's estate. The executor, personal representative, or administrator, as the case may be, is the only person authorized to deal with the bonds after a person's death. This means that a probate proceeding will need to be opened so that a person is named by the court to liquidate or transfer title to the bonds.

  • Joint Ownership: If the bonds have co-owners, and one owner dies, the bond now belongs entirely to the co-owner. The co-owner may now liquidate the bond, change title to his or her own name, or change title to the surviving owner and another person of the owner's choosing.

  • Named Beneficiary: If the bond owner named a beneficiary to the bonds on the bonds (not through her will) then upon the bond owner's death, the bond ownership is automatically transferred to the beneficiary. The named beneficiary may now liquidate the bond, change title to his or her own name, or change title to the named beneficiary and another person of the beneficiary's choosing.

  • Estate Tax Consequences: Where the bonds are owned by one person (or by one person who names a beneficiary), 100% of the value of the bonds as of date of death is includible in a person's taxable estate. Where the bonds are owned by more then one person, there is a presumption that 100% of the value of the bonds is includible in the taxable estate of the first person to die. This presumption can be rebutted if the surviving co-owner actually contributed money to buy the bonds. The more likely scenario is that grandma bought a bond naming grandchild as co-owner with grandma's money. In this situation, 100% of the value of the bond on the date of grandma's death is included in her estate, even though she had a co-owner.

  • Income Tax Consequences: Interest income on bonds is generally reported only when the bonds are cashed, disposed of (note: a change of ownership is considered a "disposition" of the bonds and interest accrued to that date must be reported at that time), or reach final maturity. Unlike other types of investments, there is no "step up in basis" for savings bonds, and the accrued, but as yet untaxed income, must be reported as some point by the estate or the beneficiaries.

    If a person owned bonds in their own name with no beneficiary, reporting the interest on those bonds for federal income tax purposes is the responsibility of either (a) the estate if the executor, personal representative, or administrator as the case may be, redeems the bonds; or (b) the beneficiaries of the estate if the bonds are transferred to them as new owners, in the year in which they redeem bonds or the bonds reach final maturity.

    Where there is a co-owner or beneficiary named, the co-owner or beneficiary is the new owner and as such is required to include on his or her return interest earned on the bonds for the year the bonds are redeemed or disposed of (including re-registration by substituting a new owner for the original living owner) or the bonds reach final maturity, whichever occurs first. Alternatively, even when there is a surviving co-owner or beneficiary, the person filing the decedent's final 1040 has the option of reporting on that return all interest earned on the bonds to the date of death. This option might be used where a person on a low income tax bracket has died, leaving the bonds to a person in a higher tax bracket.

The Bureau of Public Debt, on the Treasury Direct website, has detailed articles specifically outlining how savings bonds are to be treated in the event of the death of a bond holder.

Wednesday, September 07, 2005

Time to get Serious about 2005 Tax Planning

Category: Tax Law and Planning

From James Jimenez, CPA of Fass & Associates, P.C.. James can be reached at


Interested in saving taxes? Now’s the time to act. Reviewing your business or personal situation before year-end can help lower your 2005 tax bill. Here are some strategies to consider.

Keep an eye on your tax bracket. Moving upward from bracket to bracket costs you at least two percent higher tax on the additional income. Knowing when to take — or delay — earnings such as bonuses or commissions allows you to control your tax bracket. If you’re a business owner, think about adjusting your salary between years.

Boost contributions to your 401(k) or other retirement plan. The benefits are two-fold: current taxable income is reduced, and you enjoy tax deferral on the plan growth.

Delay sales to qualify for long-term rates. The tax rate for most long-term capital gain assets is 15% (5% for those in the lower two tax brackets). Short-term gains are taxed at ordinary income rates, which can be as high as 35%. Consider holding assets long enough (more than 12 months) to qualify for the lower rates.

Elect the installment method. If delaying an asset sale is not an option, you still might be able to defer the income and related tax. For sales of certain property, you can choose installment reporting.

Regulate your investment income. Delay interest income until 2006 by purchasing a certificate of deposit (CD) or other security that matures after year-end.

If you’ve made a loan that you’re now unable to collect, you may be entitled to a bad debt deduction. It’s important to be able to show that you tried to collect, so take the necessary steps before year-end.

More tax-saving strategies to implement before year-end include transferring assets to children, making charitable contributions, bunching itemized deductions, and taking advantage of increased business asset expensing amounts."

Friday, August 26, 2005

Savings Bonds (Part 1) - Learning More about those Bonds

Category: Elder Law, Estate Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Many people have invested in saving bonds at one time or another, or another has done so for them. For the most part, they sit in a safe deposit box until cash is needed (or you remember that you have them). However, there may be a need to find out more about the bonds or liquidate them as part of estate planning, estate administration, or elder law, or just sound financial planning for yourself.

Savings bonds are investment in the US government. There are various types of bonds, that earn interest in different fashions, and have unique tax consequences. Luckily, there are some wonderful resources on the web to cut through all of this information.

The US Government provides a very informative website at that goes through the purchase and redemption of various government investments (T-Bills, T-Notes, T-Bonds, I Bonds, EE Bonds, HH Bonds) and explains the differences between the various investments.

There is a very useful toolbox a the website for determining the current and future value of your investment:

Have Your Treasury Securities Stopped Earning Interest?

Savings Bond Wizard

Savings Bond Calculator

Growth Calculator

Savings Planner

Tax Advantages Calculator

Another excellent site is This is a commercial site oriented to financial planning. It does have excellent step-by-step guides on bond redemption, including the practicalities of redemption and guidelines to the tax consequences.

Thursday, August 25, 2005

Energy Tax Incentives Act of 2005 - Dollars to you? Tax Matters: What the New Energy Bill Means for You describes some generous new tax incentives for consumers.

"The best part: They all come in the form of tax credits, the very best kind of tax break. A credit lowers your federal income tax bill dollar for dollar. In contrast, a deduction lowers only the amount on which you're taxed, so your bill is reduced only by a percentage of the write-off. "

Some highlights from the Article:

Four New Tax Credits for Energy-Efficient Vehicles

Credit No. 1 for Hybrid Vehicles: Up to a maximum credit of $3,400.

Credit No. 2 for Lean-Burn Technology Vehicles: "Qualified "lean burn" vehicles are passenger cars and trucks with internal combustion engines that use a direct injection of a fuel mix with a higher-than-normal percentage of air." The credits are still unknown.

Credit No. 3 for Fuel-Cell Vehicles: "Qualified fuel-cell vehicles include, for example, cars that run on hydrogen cells." The credit amount can be as high as $12,000.

Credit No. 4 for Alternative-Fuel Vehicles: "Qualified alternative-fuel vehicles include cars and trucks that run solely on compressed or liquefied natural gas, liquefied petroleum gas, hydrogen, or any liquid that is at least 85% methanol...The maximum credit for garden-variety autos and light trucks is $4,000."

New Tax Credit for Residential Energy Improvements
"This personal tax credit has a $500 lifetime limit, but it's broad enough that many folks will benefit even though the numbers won't be very big."

New Tax Credit for Other Residential Energy Equipment
"You can also collect a completely separate personal tax credit equal to 30% of the cost of:

* Qualified solar water-heating equipment (maximum credit of $2,000).
* Qualified electricity generating solar photo-voltaic property (maximum credit of $2,000).
* Qualified fuel-cell property (maximum credit of $500 for each 0.5 kilowatt of capacity)."

Thursday, August 18, 2005

So You Want to Be a Landlord - Tax Benefits

Category: Tax Law and Planning, Financial Planning

I have discussed here before some of the risks with owning rental real estate in your own name ("Rental Real Estate - What are the Risks?") - it should be titled to an LLC or some other entity to create a barrier between your personal assets and the property. As a general rule, if rental real estate is owned by an LLC, the LLC is the only entity that is liable in the event of a lawsuit, and only to the extent of its assets.

The article - Tax Matters: So You Want to Be a Landlord discusses the income tax benefits of owning rental real estate (as opposed to purchasing real estate to fix up and flip).

"But the real kicker is that you can depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. Say your rental property (not including the land) cost $100,000. The annual depreciation deduction is $3,636, which means you can have that much in positive cash flow without owing any income taxes. That's a pretty good deal, especially after you own several properties. Commercial buildings must be depreciated over a much longer 39 years, but the write-offs will still shelter some cash flow from taxes. "

Since an LLC is a pass-through entity for tax purposes, if the rental real estate is owned in an LLC, the tax benefits will flow through to your personal return.

Tuesday, August 09, 2005

Midyear Financial and Tax Planning Checkup

Category: Tax Law and Planning, Financial Planning

Portsmouth Herald Financially Speaking by Holly Hunter: Mark calendar for midyear financial checkup - If your spring cleaning resulting in a pile of papers to go through, or you resolved to make some financial housekeeping changes this year, some food for thought.

Also, some views from James Jimenez, CPA, a partber at Fass & Associates, certified public accountants located in Parsippany, New Jersey as to mid-year tax tuneups:


It’s summertime! Probably the last thing on your mind is tax planning. The problem is that if you wait until December to think about your 2005 taxes, there won’t be enough time for any tax strategy to take effect. But if you take the time to plan now, you still have six months for your strategy to work this year. So set aside some time for tax planning right now. Begin by pulling out your 2004 tax return.

* Review your income and deductions for last year. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, find out what you can do to keep this year’s income below the threshold in order to save the tax break.

* Evaluate your investment portfolio. By now you should have an idea whether you’ll be selling any investments this year. Taking losses by pruning your portfolio can be an effective way to manage income.

* Build a retirement fund and cut taxes too. Take advantage of the new higher contributions allowed for IRAs, SIMPLEs, SEPs, and 401(k) plans. If you will be 50 or older by December 31, take advantage of the additional “catch up” contributions you can make to your retirement plan.

* Check out education tax breaks. If you or your children are in college, review the education tax breaks for 2005. These include the deduction for higher education expenses, a deduction for student loan interest, and contributions to Section 529 plans or education savings accounts.

* Don’t overpay your taxes. Finally, if you received a large refund on last year’s taxes, consider reducing your withholding for this year. To adjust your withholding, file a new Form W-4 with your employer."

Don't just deed your house to your child

Category: Elder Law, Estate Planning, Tax Law and Planning MAIL BAG: Mom made a costly error in deeding house to child is an example of good intentions coupled with a lack of understanding of tax laws resulting in a large unexpected tax.

While the owner of their own primary residence enjoys an exemption from capital gains tax on the sale under IRC Section 121, a non-resident owner does not. See IRS Publication 523 for more information.

Here, mom gifted her house to son, and when he went to sell it to pay for mom's care, he found out that he owed capital gains tax on over $400,000 on the sale of the house. He (mistakenly) believed there was no tax on the sale of a home. He misunderstood that the tax exemption only applied (1) to his primary residence, not any residence he owned, and (2) only up to certain dollar limitations ($250,000 for a single person and $500,000 for a married couple).

This situation described in this article could have been avoided by considering several other alternative plan with the house such as:

  • Mom selling house to son for a note - mom's sale is sheltered from tax through IRC Section 121, and son's basis in the house is the purchase price,
  • Mom and son joining together to take out a home equity line so that she can keep the house but pay for her care,
  • A reverse mortgage,
  • A gift to son with mom retaining a life estate so she can always live in the house. The life estate would also include the house in her taxable estate, which in turn means that upon her death the son's basis is the fair market value at time of death (a "step-up" in basis under IRC Section 1014) - son can rent the house to generate income to pay for mom's care if she can no longer live at home.

Monday, August 08, 2005

Thoughts before making that Charitable Contribution

Category: Tax Law and Planning

Good tips to consider before you make that charitable contribution - you should know what you are contributing to, with what result.Bluefield Daily Telegraph