All Forum Posts by: Don Darnell

Thanks everyone for pondering the question and replying.

A number of years ago I bought a primary house for my mom due to her bad credit. She paid all closing and down payment costs. I paid the mortgage initially for four years and she covered all remaining household costs. After the four years, I continued to make the payment and she reimbursed me. My mom has paid for multiple renovations and paid $60K to pay off the mortgage. On paper I own the house, but she has always been the owner. She would like to move to a retirement home now having lived in the property for 10 years. What would she/I need to do so she can claim the $250K home exclusion since not my primary home? 

Thanks,

Don

Thanks Basit Siddiqi for the comments. Was not aware of the NIIT, but if I understand it our MAGI must exceed $250K for it to come into play. Our MAGI is significantly less and believe not a factor. My guess is the tax change for 2021 where the IRS introduced a new form called Qualified Dividends and Capital Gains Tax worksheet is causing some problems. As you know, the form may adjust your taxable income based on the original taxable income, your capital gains and qualified dividend income. The adjusted taxable income is then used to calculate the tax you owe the IRS, producing the value for line 16 in the 1040.

In reviewing all of the downloaded IRS transcripts, there does not appear to be a line for the adjusted taxable income, which was ultimately used to calculate the tax. Given it’s a very important number, my guess is the IRS has yet to add it to the IRS transcripts given the tax change was added in 2021.

In my case, looking up my tax using my taxable income in the IRS tax tables gives a tax that is $2000 more than what I paid. However, if I use the adjusted taxable income from the Qualified Dividends and Capital Gains Tax worksheet, that I’m allowed to do, then the tax is what I paid in my initial return.

I’m thinking the IRS software for 1040X returns did not take into consideration the Qualified Dividends and Capital Gains Tax worksheet correctly. It seems like others may encountered same the problem like the notices about math letters people got erroneously. 

Thanks again,

Don

Hi, I own an unimproved lot and capitalize HOA fees and property taxes every year to increase the property basis by amending my taxes and adding something like the following "magic" text as required by the IRS:

"For tax year 2021, taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct HOA fees paid in the amount of $#### and $#### property taxes as carrying costs on a vacant lot that is unimproved and non-productive bare land. The lot is located: street address, city and state."

I do my own taxes using Turbotax and the software does not have the ability to upload the magic words when I file online so I file a 1040X with snail mail with no changes except for the magic text. I have been amending the returns for a number of years with no issues.

A few days ago got an IRS notice CP22A, with the notice stating the IRS made changes that I requested (1040X) and “there was a change to my investment gain or loss” and that I owe $2000 plus interest. Given the change I downloaded the various transcripts from the IRS expecting to see the updated Schedule D changes, but the amounts for short term and long term stock sales was the same plus my taxable income was the same as my initial return. Checking the IRS tax tables for my taxable income and the number matches what Turbo tax listed.

I called the IRS and spent hours waiting and finally talking with multiple agents. The staff was friendly, but could not point to why I owed $2000 in additional taxes given they were getting the same numbers as me. In the final conversation, the agent told me to request detailed information about the charge by mail only. I have made an appointment to talk face-to-face with an agent in late December to get this straightened out.

Lastly, I recently found the following link that lets Turbotax add the magic text to your original return so you can file online and don’t have amend your taxes.

https://ttlc.intuit.com/commun...

Thanks Dave for the useful information. As I mentioned, I had heard of the construction 1031, but not the leasehold exchange. I have owned the lot for many years and see it as a perfect retirement spot. I'll spend some time looking into the leasehold exchange idea. Thanks again - Don.

Thanks Dave for your response. I posted the question because 1) My accountant has passed away and he was really into 1031 exchanges. 2) I was finding articles on the web talking about a minimum 14 day rental period requirement for certain properties and was confused if my property needed the requirment. 

I understand I cannot exchange the house for the lot, but I've send articles referencing a Construction 1031 where the proceeds of the old property are held in a LLC managed by a QI. The QI oversees the construction and within 180 days I acquire the constructed property. Is this what you mean by "leasehold" ?

Thanks again,

Don

Hi, Own multiple California properties in two different beach resort areas. In 1999 built a home on one of the properties. It was not a vacation home, but was held for investment and depreciated it on day one. I also did not rent it out. My accountant said I was not required to rent it. In the last two years rented briefly to friends. Would like to do a 1031 exchange with another property I own, but is unimproved at the moment.  Does the existing house qualify for the exchange? Thanks, Don