Deductions. Ch. 4: Medical Deductions. ILM Medicare Premiums as Self-Employed Health Insurance under Sec. 162(l)

Transcription

1 Ch. 4: Deductions Medical Deductions ILM Medicare Premiums as Self-Employed Health Insurance under Sec. 162(l) 4-1 ILM All Medicare Parts count as health insurance A, B, C, D 4-1

2 ILM Partnership/S Corp can reimburse 4-1 Medicare premiums and treat this as part of a company health plan ILM Medicare premiums for a spouse or dependent child may be deducted under sec. 162(l) 4-2 Notice HSAs: Effect of Coverage under Indian Health Service 4-2 Property Taxes 4-3

3 Info Ltr Deductibility of Property Tax Bill Amounts 4-3 Can Anyone Figure Out Exactly What is a Deductible Real Property Tax?? Reg : So-called taxes for local benefits referred to in paragraph (g), more properly assessments, paid for local benefits such as street, sidewalk, and other like improvements, imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied are not deductible as taxes The real property taxes deductible are those levied for the general public welfare by the proper taxing authorities at a like rate against all property in the territory over which such authorities have jurisdiction.

4 GAO Report on Prop Taxes $156 Billion in % of taxpayers overstated the deduction FTB Proposal: Ad Valorem Taxes Only Parcel numbers on Schedule A 4-3 Info Ltr (b)(1) requires a personal property tax be an ad valorem tax to be deductible. The Code does not explicitly require the same for real property taxes. 4-5

5 Info Ltr Assessments on real property owners, based other than on the assessed value of the property, may be deductible if they are levied for the general public welfare by a proper taxing authority Info Ltr at a like rate on owners of all properties in the taxing authority s jurisdiction, and if the assessments are not for local benefits (unless for maintenance or interest charges). 4-5 Ch. 5: Repairs vs. Capital Improvements

6 >200 pages 135 Examples

7 Mortgage Interest 4-5 Bronstein v. Comm r Home Mortgage Interest Deduction Limit for Married Filing Separate 4-5 Married Co-Tenants MFJ $$ $1,000,000 Married Co-Tenants MFS $$ $550,000 $1,000,000 Mortgage $1,000,000 Mortgage

8 Sophy v. Comm r Home Mortgage Interest Deduction 4-6 Limit for Unmarried Co-Tenants Unmarried Co-Tenants 50% 50% $750,000? $1,500,000 Mortgage $750,000 CCA % 50% 4-6 Separate Ownership RDPs $550,000 $550,000 $1,100,000 $600,000 $1,500,000 1 Mortgage $1,100,000 per residence $1,400,000 Mortgage $600,000 Mortgage

9 Sophy v. Comm r Sophy v. Comm r /50 50/50 $550,000 $550,000 $1,400,000 Mortgage $600,000 Mortgage $1,400,000 Mortgage $600,000 Mortgage Edosada v. Comm r 4-7 Edosada v. Comm r Equitable Ownership Legal Title Legal Borrowers Equitable Ownership Legal Title Legal Borrowers BANK $2.15 million $1.6 million $$$ BANK $2.15 million $1.6 million

10 Reg Deducting Prepaid Mortgage Insurance Premiums 4-8 Private/FHA Mortgage Insurance Premiums 4-8 Deduct over 7 years or Mortgage Term, if shorter Private/FHA Mortgage Insurance Premiums No deduction for unamortized balance upon early pay-off of loan 4-8 VA/RHS Mortgage Insurance Premiums Deduct in the same manner as prepaid interest

11 VA/RHS Mortgage Insurance Premiums 4-9 Prepaid interest: Deduct over loan term Write-off unamortized balance upon pay-off of loan Charitable Donations Mohamed v. Comm r Mohamed v. Comm r 2003 Rio Vista Lot Rio Vista Lot Sact o Land Appraised Value $125, ,040 14,873,921 Sold For $125, ,000 22,900, Rio Vista Lot Rio Vista Lot Sact o Land Appraised Value $125, ,040 14,873,921 Sold For $125, ,000 22,900, Shopping Ctr 2,642,191 2,280, Shopping Ctr 2,642,191 2,280,000

12 Joseph filled out the 2003 tax return himself, including the Form 8283, Noncash Charitable Contributions. He admits that he did not read the instructions before completing the form, because he says it seemed so clear that he didn't think he needed to Form 8283 Donations after 6/3/ Rio Vista Lot Rio Vista Lot Sact o Land Gift to CRUT Appraised Value $125, ,040 14,873,921 Sold For $125, ,000 22,900, Shopping Ctr 2,642,191 2,280,000 Remainder Interest Only

13 Sec. 170(f)(8)(B) Donee Acknowledgment Whether the donee organization provided any goods or services, in whole or in part, for the donation Reg A-13(f)(13) Donee Acknowledgment not required for gifts to charitable trusts Durden v. Comm r Checks written to church for over $250: $22,

14 Sec. 170(f)(8)(B) Donee Acknowledgment no goods or services provided... Congaree River South Carolina 4-11 Conservation Easement on 1,092 acres of land Averyt v. Comm r Charitable Deduction = $5.5 Million Conservation Easement on 1,092 acres of land On behalf of Ducks Unlimited, I would like to personally thank you for your recent donation of a conservation easement on Cooks Mountain. We are grateful for the opportunity to protect a vital piece of South Carolina's low-country wildlife habitat through this easement. I would also like to acknowledge your gift of $6,250 to the Ducks Unlimited Low-country Initiative Endowment. Per your request, this gift will be recognized as a Life Sponsorship under Mark R. Hoover. I will be sending your son a Life Sponsor pen and pendant from this office. Your gift will enable us to uphold the legal obligation to protect and maintain your conservation easements in perpetuity.

15 Averyt v. Comm r Defective Acknowledgment from Charity Cured by Language in Deed 4-12 Charitable Deduction = $16.4 Million Conservation Easement on 277 acres of land Scheidelman v. Comm r 2 nd Circuit 4-13 Upholds Façade Easement Appraisal Based Upon Percentage Reduction in Value Scheidelman v. Comm r $1,015,000 value x 11.33% discount = $115,000 Easement Value

16 For the purpose of gauging compliance with the reporting requirement, it is irrelevant that the IRS believes the method employed was sloppy or inaccurate, or haphazardly applied -- it remains a method, and Drazner described it The regulation requires only that the appraiser identify the valuation method "used"; it does not require that the method adopted be reliable. By providing the information required by the regulation, Drazner enabled the IRS to evaluate his methodology. Tax Court still taking a hard line: Rothman v. Comm r Dunlap v. Comm r Kaufman v. Comm r 1 st Circuit 4-17 Allows Façade Easement Deduction for Mortgaged Property Rolfs v. Comm r No Charitable Deduction for Allowing Fire Department to Burn Down Your House 7 th Circuit 4-19

17 FMV = $675,000 Land = $599,000 House = $76,000 When property is donated to a charity on the condition that it be destroyed, that condition must be taken into account when valuing the gift. Detached from Land House = 0 Left the door open for deduction for salvage value of the detached house

18 Patel v. Comm r Allowing Fire Department to Burn Down Your House Sec. 170(f)(3) No deduction for partial interests in property $625,000 $339,504 Exceptions: 4-21 Patel v. Comm r undivided portion of the taxpayer's entire interest in property, remainder interest in a personal residence, or qualified conservation contribution Undivided Interest in the Property or Right to Use the Property?

19 4-21 Granting a fire department the right to destroy the building while conducting training exercises on the property is not a conveyance of ownership, title, or possession of the building or any other property interest in the building... Rather it is a mere license to use the property. 7 Judges dissented 4-22 Dissent: Donation of entire interest in house severed from the land 4-22 Notice Charity-Owned Single Member LLC

20 4-22 Carlebach v. Comm r Dependency Exemptions Citizenship requirement for nonresident dependents 4-22 Scalone v. Comm r Noncustodial Parent Claim of Dependency Exemption 4-23 Final 2008 Regs Divorce Decree cannot substitute for the Form

21 Custody cannot be determined by the court decree Actual # of nights controls 4-25 California Now Conforms to Federal Rules 4-25 Business Deductions 4-25 Prop Reg Deduction Allowed for Certain Local Lodging Expense

22 Prop Reg Prop Reg Example 3: Temporary lodging near employer's business premises while new employee searches for a residence. Employer is paying the temporary lodging expense primarily to provide a personal benefit to employee by providing housing while employee searches for a residence. Example 4: Lodging for employee with long commute who has to work late hours for a special project. Employer is paying the temporary lodging expense primarily to provide a personal benefit to employee by relieving her of the daily commute to her residence. Prop Reg Safe Harbor bona fide business meeting, conference, training activity, or other business function; employer requires the employee to remain at the activity or function overnight for a period that does not exceed 5 days and does not recur more frequently than once per calendar quarter; not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation, or benefit Prop Reg (f) Application of 50% Limit on M&E Expense to Party Reimbursement Arrangements

23 4-27 Employer Employer Client Client $$ $$ Employee Employee Employer $$ Employer $$ Client 50%? Client $$ $$ Employee Employee

24 4-28 Employer takes the 50% haircut unless there is a written agreement providing that the client will reimburse the employer for meal expenses incurred. Reg Entertainment Use of Business Aircraft Mile RT Flight SIFL Calculation 660 x.2569 = $ 170 Control Employee 300% $ x = 94 $ 604 Sec. 274(e)(2) Company s deduction for employee s personal entertainment use of plane is limited to the amount included in employee s income

25 Specified Individuals Sec. 274(e)(2)(B) The limitation applies to use of the plane for personal entertainment travel by specified individuals, defined as: officers or directors >10% owners includes 10% partners Bauer v. Comm r Use of Industry Stats for Estimating Expenses under Cohan Rule

26 Olive v. Comm r No Deductions for Medical Marijuana Dispensary 4-33 Sec. 280E No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances