Question: If I were to sell property at a gain and reinvest the cash proceeds during the same year, will I still have taxable income?

Answer: Yes, you probably do have taxable income.  Let's assume the property sold is not a personal residence, but is business or investment property.  Section 1031 exempts from tax all or part of the gains from "tax-free exchanges"; however, selling property at a gain and then reinvesting the cash in similar property is not a qualified tax-free exchange.

 

Question: During the past year I incurred capital losses, is it true that I can only deduct $3,000 of my losses per year?

Answer: No.  Capital losses first can be offset, in full, against any capital gains that you may have had.  If your losses still exceed any gains, an additional $3,000 loss can be claimed on your form 1040.  Any remaining loss may be carried forward until death or until the loss is exhausted.

 

Question: I sold my personal residence in 2007; however, I kept two adjoining lots purchased at the time I acquired the residence.  Do the lots qualify for the $500,000 gain exclusion if I sell them in 2010?

Answer: Possibly!  If you can demonstrate that the lots were used for personal purposes along with the personal residence, the subsequent sale probably will qualify for the exclusion.  If however the lots were ever used for rental and other business uses, the sale would not qualify for the exclusion.

 

Question: During the past year I sold some mutual funds and was wondering how do I pay taxes on these sales?

Answer: Refer back to documents relating to your original purchase of the mutual funds, the records of reinvested dividends and past partial redemptions.

 

Question: When I die, what are my surviving spouse's tax responsibilities?

Answer: The decedent's tax year ends on the date of death.  A surviving spouse is still eligible to file a joint return for the year of death.  Appraisals of property owned by the decedent (including jointly held property) must be done to establish whether or not the decedent's estate exceeds $3,500,000 (2009 filing threshold) and is, therefore, required to file IRS Form 706, Federal Estate Tax Return.  Many states require an inventory of assets to be filed and many levy an inheritance tax upon certain recipients of inherited property (Minnesota's threshold is $1,000,000 for 2009).

 

Question: Filling your taxes is at times a complex task.  Does the IRS have plans to simplify this process by implementing a flat tax?

Answer: First, it is Congress who makes the laws complex, not the IRS.  Experts warn that an overlay complex tax system breeds noncompliance.  The 1986 tax reform laws started down the road to simplification.  The 1997 tax bill ended that with four capital gains rates, two pages of Schedule D, credits for kids and education, along with Roth IRAs, to mention only a few complexities.  The 2003 tax bill further reduced tax rates on both ordinary income and capital gains.  The flat tax debate tends to emerge every four years during national elections.

 

Question: What is Social Security wage base for 2009?

Answer: The Social Security wage base is $106,800 for 2009.

 

Question: I'm in an investment-limited partnership with out-of-state commercial real estate.  It has been a bad deal.  Since 1986, I haven't been able to deduct the losses.  No one will buy it, can I give it away?

Answer: The short answer is hold it until you die.  At that time, your limited units will be revalued (perhaps at a value much lower than the original cost) and many of the income tax disadvantages that arise from a contemplated lifetime sale or lifetime gift will go away.  Upon the sale or transfer or limited units, the partner's share of partnership debt, which has funded deductions in past years, is forgiven and treated as "phantom" taxable income.  We've seen situations where offers to buy out limited partners at $50 in cash have resulted in the creation of $60,000 in "phantom" taxable income.  Holding until death may not eliminate all taxes, but it overcomes much of the "phantom" income.

 

Question: I recently inherited some assets; as a result do I have to pay income taxes?

Answer: In case of most life insurance proceeds, cash, stocks, securities and real estate bequests, the answer is "no."  There are, however, exception: annuities, inherited IRAs, pension plans, profit sharing plans, 401(k) plans and Series E, EE, HH US government bonds, as well as installment contracts from the sale of assets prior to death will all be subject to state and federal income tax on the heir's return as "income in respect of a decedent" or IRD.  If the decedent's estate was large enough to incur a federal estate tax, a recipient of IRD may be eligible for a special itemized deduction on his/her Form 1040.

 

Question: My business requires me to use my personal vehicle.  Am I required to keep a mileage log?

Answer: An employee or self-employed person can substantiate car expenses by keeping exact records of the amount paid for gasoline, repairs, insurance and other costs, or opt to use the standard mileage rate.  Business mileage is established through odometer readings.  This means a mileage log is a must.