Ch. 4: Medical Deductions - mntaxclass.commntaxclass.com/files/TAXA_-_Ch_4_Deductions3.pdf ·...
Transcript of Ch. 4: Medical Deductions - mntaxclass.commntaxclass.com/files/TAXA_-_Ch_4_Deductions3.pdf ·...
Ch. 4:
DeductionsMedical
Deductions
ILM 201228037
Medicare Premiumsas
Self-EmployedHealth Insurance
under
Sec. 162(l)4-1
ILM 201228037
All
Medicare Partscount as
health insurance
A, B, C, D4-1
ILM 201228037
Partnership/S Corpcan
reimburse
Medicare premiums
and treat this
as part of a
company health plan
4-1
ILM 201228037
Medicare premiumsfor aspouse
ordependent childmay be deductedunder sec. 162(l)
4-2
Notice 2012-14
HSAs:
Effect of Coverage
under
Indian Health Service
4-2
Property
Taxes
4-3
Info Ltr 2012-0018
Deductibilityof
Property Tax BillAmounts
4-3
Can AnyoneFigure Out
Exactly Whatis a
DeductibleReal Property
Tax ??
“So-called taxes for local benefits referred
to in paragraph 1.164-2(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.
Reg. §1.164-4: 4-3
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.”
4-3
$156 Billion
in 200672% of taxpayers
overstated the deduction
GAO Report on Prop Taxes
FTB Proposal:
Ad Valorem Taxes Only
Parcel numberson Schedule A
4-3
Info Ltr 2012-0018
4-5
“§ 164(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.”
Info Ltr 2012-0018
4-5
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 2012-0018
4-5
. . . 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).”
Ch. 5:
Repairs
vs.
Capital
Improvements
Mortgage
Interest
4-5
Bronstein v. Comm’r
Home Mortgage
Interest
Deduction Limit
for
Married Filing
Separate 4-5
$1,000,000 Mortgage
$1,000,000
Married Co-Tenants
MFJ
$$
$1,000,000 Mortgage
$550,000
Married Co-Tenants
MFS
$$
Sophy v. Comm’r
Home Mortgage
Interest
Deduction
Limit
for
Unmarried Co-Tenants
4-6
50% 50%
$1,500,000
Mortgage
$750,000$750,000 ?
Unmarried Co-Tenants
50% 50%
$1,500,000
Mortgage
$550,000$550,000
CCA 200911007
1
$1,100,000 per
residence
4-6
$1,400,000
Mortgage
$600,000$1,100,000
Separate Ownership
$600,000
Mortgage
RDPs
50/50
$1,400,000
Mortgage
Sophy v. Comm’r
$600,000
Mortgage
50/50
$1,400,000
Mortgage
$550,000$550,000
Sophy v. Comm’r
$600,000
Mortgage
4-6
Edosada v. Comm’r
Legal Title
Legal Borrowers
BANK
“Equitable
Ownership”
$2.15 million $1.6 million
4-7 Edosada v. Comm’r
$$$
Legal Title
Legal Borrowers
BANK
“Equitable
Ownership”
$2.15 million $1.6 million
Reg §1.163-11
Deducting
Prepaid
Mortgage Insurance
Premiums
4-8
Private/FHA
Mortgage Insurance
Premiums
Deduct over
7 years
or
Mortgage Term, if shorter
4-8
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
VA/RHSMortgage Insurance Premiums
Prepaid interest:
• Deduct over loan term
• Write-off unamortized
balance upon pay-off
of loan
Charitable
Donations
4-9
Mohamed v. Comm’r
AppraisedValue
$125,000264,040
14,873,921
2,642,191
SoldFor
$125,000265,000
22,900,000
2,280,000
2003
Rio Vista LotRio Vista LotSact’o Land
2004
Shopping Ctr
Mohamed v. Comm’r
AppraisedValue
$125,000264,040
14,873,921
2,642,191
SoldFor
$125,000265,000
22,900,000
2,280,000
2003
Rio Vista LotRio Vista LotSact’o Land
2004
Shopping Ctr
“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 . . .”
4-9 Form 8283
Donations after 6/3/2004 Gift to CRUT
AppraisedValue
$125,000264,040
14,873,921
2,642,191
SoldFor
$125,000265,000
22,900,000
2,280,000
2003
Rio Vista LotRio Vista LotSact’o Land
2004
Shopping Ctr
Remainder Interest Only
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. §1.170A-13(f)(13)
Donee
Acknowledgment
not required
for
gifts to
charitable trusts
284-11 Durden v. Comm’r
Checkswritten to churchfor over $250:
$22,200
4-11
Sec. 170(f)(8)(B)
Donee Acknowledgment
“no
goods or services
provided . . .”
Conservation
Easement
on
1,092 acres
of land
Congaree River
South Carolina
Averyt v. Comm’r
4-11
Conservation
Easement
on
1,092 acres
of land
Charitable Deduction= $5.5 Million
“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.”
Averyt v. Comm’r
Defective
Acknowledgment
from Charity
Cured by
Language
in Deed4-12
Conservation
Easement
on
277 acres
of land
CharitableDeduction
=$16.4 Million
Scheidelman v. Comm’r
2nd Circuit
Upholds
Façade Easement
Appraisal
Based Upon
Percentage Reduction
in Value
4-13
Scheidelman
v.
Comm’r
$1,015,000 valuex
11.33% discount=
$115,000Easement Value
“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.”
4-14
Tax Court still taking a hard line:
Rothman v. Comm’r
Dunlap v. Comm’r
4-15
4-16
Kaufman v. Comm’r
1st Circuit
Allows
Façade Easement
Deduction
for
Mortgaged Property
4-17
Rolfs v. Comm’r
NoCharitable Deduction
forAllowing Fire Department
toBurn Down Your House
7th Circuit
4-19
FMV = $675,000
Land = $599,000
House = $76,000
“When property is donated to a charity
on thecondition thatit be destroyed, that condition
must betaken into account
when valuing the gift.”
House = 0
Detached from Land
Left thedoor open
for deductionfor
salvage valueof the
detached house
Patel v. Comm’r
AllowingFire Department
toBurn DownYour House
35
$625,000 $339,504
4-20
Sec. 170(f)(3)
No deductionfor
partial interestsin property
354-21
Exceptions:
•undivided portion of the taxpayer's entire interest in property,
•remainder interest in a personal residence, or
•qualified conservation contribution
4-21 Patel v. Comm’r
Undivided Interest
in the Property
or
Right to Use
theProperty?
“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.”
4-21
7Judges
dissented
4-22
Dissent:
Donationof
entire interestin
housesevered
from the land
4-22
Notice 2012-52
Charity-OwnedSingleMemberLLC
354-22
Dependency
Exemptions
4-22
Carlebach v. Comm’r
Citizenship requirement
fornonresidentdependents
4-22
Scalone v. Comm’r
NoncustodialParentClaim of
Dependency Exemption 4-23
Final 2008 Regs
Divorce Decree cannot
substitutefor the
Form 8332
4-24
Custodycannot be
determined by the court decree
Actual # of nights controls
4-25 CaliforniaNow
Conformsto
Federal Rules
4-25
Business
Deductions
4-25Prop Reg §1.162-31
Deduction
Allowed
for
Certain
Local Lodging Expense
4-25
Prop Reg §1.162-31
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.”
364-26 Prop Reg §1.162-31
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.”
4-26
Prop Reg §1.162-31
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 daysand 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.
364-27 Prop Reg §1.274-2(f)
Application of
50% Limit on
M&E Expense
to
3-Party Reimbursement
Arrangements
384-27
Employer
Client
Employee
$$
4-27
Employer
Client
Employee
$$
Employee
$$
$$
Client
Employer
Employee
$$
$$
Client
Employer
50%?
Employer
takes the
50% haircut
unless there is a
written agreement
providing that the
client will reimburse
the employer for
meal expenses incurred.
4-28
Reg §1.274-10
Entertainment Useof
Business Aircraft
4-29
660 x .2569 = $ 170
Control Employee 300%
$ 510
2 x 46.97 = 94
$ 604
660 Mile RT Flight
SIFL CalculationSec. 274(e)(2)
Company’s deduction
for employee’s personal
entertainment use of
plane is limited to the
amount included in
employee’s income
“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 Rule4-32
4-33 4-33
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 . . .”
4-33