Section 1250 property
NEVER EVER use accelerated depreciation on commercial real property. This has always been my philosophy and it has been brought home quite clear during a conversation with another accountant this spring. From 1982 through 1986 a taxpayer could depreciate newly acquired commercial real property using ACRS over a 15-year life. They had a choice then on using SL (straight line) or accelerated (tables) over the 15-year period. Suppose that property is sold in 2001. At the time of sale, the property is completely depreciated (except for the land value allocation). Therefore, basis is basically zero. If the 15-year SL method was used back in the 80's, then all of the gain is taxed at the capital gain rates. Conversely, if the accelerated method was chosen, then all of the gain would be ordinary gain and subject to recapture under Code Sec. 1250. Another slap in the face - consider the total amount of depreciation over the 15-year period would be the same amount by either method. Therefore, by using accelerated method of depreciation a taxpayer has converted capital gain income into ordinary income - POOR PLANNING!!
IRA tax planning
The IRA Distribution nightmare is over. The IRS recently dismantled the complex maze of distribution rules in favor of a simple and fair system. The new rules are optional as of 1-1-01 and in force retroactively from 1-1-02. The more liberal distribution rules are a tradeoff by the IRS in order for them to more closely monitor the minimum required distributions (MRD). Under the old rules the IRS never knew if the MRD was paid unless the taxpayer was audited. Under the new rules the IRS will be able to monitor the MRD, as all IRA trustees must report balances and distributions annually. (Remember there is a 50% penalty on retained funds not distributed in a timely manner.) During the 1990's, I talked a great deal in the PTI tax seminars about using the "time certain" method of distributions when a child or a grandchild was chosen as a beneficiary. This is no longer necessary because a child or grandchild that inherits an IRA can choose to have it paid out over their life expectancy - if, they may an election to do so by December 31st of the year after they inherit the IRA. Pay attention to these new rules - they can be of great benefit to many taxpayers. And, on the other hand, it can be a very costly mistake (50% penalty) if the MRD is not made.
Automotive Manufacturers Incentive Program
Incentive payment from manufacturer to sales personnel are taxable, but not as wages and are not considered self-employment income. See Publication 3204 or check it out at: http://www.irs.ustreas.gov/prod/bus_info/emp_tax/index.html
Roth IRA Reporting
The conversions from Traditional IRA's to Roth IRA's is to be reported on Part II, of Form 8606, Nondeductible IRA's. Distributions from Roth IRA's are to be reported on Part III of this form. The calculated taxable portion from these taxable Roth IRA's then goes to line 10b of Form 1040A or to line 15b of Form 1040.
Sometimes real estate that has been sold on an installment sale is repossessed because of a default by the purchaser. In most cases a taxpayer will realize a gain on the repossession because of the previously received down payment and maybe principal payments. In most of these installment sales only a portion of what is received is reported as taxable income. On repossession the untaxed portion needs to be reported. The reasoning - you now have your original property back (repossessed) and you also are keeping all of the principal payments received (some of which has not been taxed because it was treated as return of original cost [basis].) Of course, your new basis in the property repossessed is increased by this gain that is being reported on the repossession.