Using Section 179

Q:

I appreciate your web site. I am trying to complete a homework assignment and have found your web site a great help for my income tax class.

This is my problem,

Lori, who is single, purchased a copier (5-yr class property) for $31,000 and furniture (7-yr class property) for $42,000 on May 20, 2003. Lori expects the taxable income derived from her business (without regard to the amount expensed under sec 179 to be about $100,000. Lori wants to elect immediate sec 179 expensing, but she doesn't know which asset she should expense under sec 179.

a.) determine Lori's total deduction if the sec 179 expense is taken with respect to the copier.

b.) determine Lori's total deduction if the sec 179 expense is taken with respect to the furniture.

c.) What is your advice to Lori?

This assumes that sec 179 is at $25,000 not the increased $100,000.

According to your site, there is a limit of one maximum. Does that mean Lori can claim either the copier or the furniture and not both even if the cost for both were below the maximum?

I would appreciate your help if you have time.

Thanks,

As a rule, I don't answer homework questions.  However, you mentioned something that has me concerned that others may also be misunderstanding the rules for claiming the Section 179 expensing deduction.

I'm not sure where you are getting the idea that it can only be claimed on one asset per year per tax return.  That is not the case at all.  In fact, I often prepare tax returns where the Section 179 section of Form 4562 says "See Attached Schedule" and several different items are listed on a backup schedule.

Whatever the limit is for the year ($25,000 or $100,000), it can be used to cover the cost of dozens of individual assets for the year.

It is also not an "all or nothing" application.  As an election, you have the right to claim nothing under Section 179 for the year, or perhaps only part of the total that can potentially be claimed. 

You also have the option of dividing the allowable deduction among the different assets acquired during the year.  For example, you could claim $10,000 against the copier and $15,000 against the furniture.  You would then depreciate the remaining cost basis of each asset over its useful life. 

Normally, if maximum deductions are the goal, when one asset has a longer class life than another (such as seven vs. five years), it makes more sense to use Sec. 179 on the asset with the longer life.

I hope this clears things up for you.  Good luck in your class.

Kerry Kerstetter

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/31/2004 08:41:00 PM Send this post:

 
Selling Converted Exchange Property

Proving once again how tax laws are so wide open to different interpretations, I received the following from a 1031 exchanger on the Left Coast in response to my earlier posting on this topic.

Hi, saw your post in the blog re the change in the new tax bill that just went into effect, disallowing the capital gains exclusion for sale of a personal residence within 5 years of its acquisition via 1031 exchange.  I am wondering how you interpret the language "...sales or exchanges after..." the effective date of the act.  Why mention exchanges?  Are they trying to say that if the exchange took place prior to the effective date, this doesn't apply?  If the intent is to make it apply immediately to all such sales, regardless of when the 1031 exchange took place, why mention "exchanges" at all in this phrase?

Regards,

My reply:

I have to agree with the FEA's interpretation of this provision (which I will forward to you) that it would apply to any residence disposition after the 10/22/04 enactment date of the new law.  My guess is that the law mentions "sales or exchanges" in relation to the disposal of a residence in order to include non-cash transactions, such as someone swapping a residence for another property.  Such a deal would be considered a taxable event based on the fair market value of the other property received and would not be eligible for the Sec. 121 exclusion, even if the original property was acquired prior to 10/22/04.

It would obviously be nice if properties acquired prior to 10/22/04 could be grandfathered in and allowed to use the tax free exclusion; but I have never seen any language allowing that to happen.

I hope this helps. 

Kerry Kerstetter 

 

 

 

Labels: 1031

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/31/2004 02:13:00 PM Send this post:

 

Tennessee Legislative Races Face Income Tax Impact

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/30/2004 12:58:00 PM Send this post:

 

Are You Retirement Ready -- Or Not?

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/30/2004 12:41:00 PM Send this post:

 

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/30/2004 12:19:00 PM Send this post:

 
It worked wonders for his personal finances.

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/30/2004 12:14:00 PM Send this post:

 

USPS Gets Nothing From Senate Tax Bill - Could it be because an organization that already has a legal business monopoly, can raise its prices in the face of declining quality of service, and can already count on taxpayer dollars to bail out its ineptitude, doesn't really deserve any more breaks?

  

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/29/2004 05:08:00 PM Send this post:

 
Deductions For Hybrid Fuel Vehicles

Q:

Dear Tax Guru: Could you please advise whether you are aware of whether the clean fuel deduction for hybrid vehicles is or will be available in 2005 for the Ford Escape hybrid? I know that the Toyota and Honda hybrids are eligible. Thank you in advance for your time.

A:

As you probably know from the IRS website, they have only officially endorsed the Honda and Toyota models for this special deduction. I'm not aware of which other vehicle models IRS is working on for future eligibility. If anyone would be extremely interested in having the Ford Escape qualify, it would be Ford. I checked their website and can't find any mention of their working toward this goal. I would think that this would be a big selling point for them; so if they aren't discussing it as a possibility, they are probably not pursuing it.

After my earlier message to you, I did a search on www.AutoBlog.com and found several articles about the Ford Escape; but none of them mentioned it qualifying for the special tax deduction.

That's all I can see on this issue.

Good luck.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/29/2004 01:07:00 PM Send this post:

 

IRS probes NAACP leader's speech - Don't expect anything to happen here.  Leftist charities are allowed to get involved in politics without any repercussions all the time. If it had been a conservative organization doing this, it would obviously be a very different story.

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/29/2004 10:37:00 AM Send this post:

 

Shift Toward Flat Tax Continues

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/28/2004 10:00:00 PM Send this post:

 
Check 21 Takes Effect Today

Snopes.com has a good explanation of how the new rules are supposed to work.

 

 

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/28/2004 08:24:00 PM Send this post:

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/28/2004 08:13:00 PM Send this post:

 
It Was A Surprise To Some People

Not everyone was aware that the Section 179 deduction was going to be reduced for SUVs, as per this email I received.

Kerry

I was reading your tax law on section 179 that was updated on Oct 27.  I was surprised to see that there is a limit of 25,000 on the claim for SUV's I thought this would have been valid through the end of the year.  I am to purchase a 6008 lb vehicle tomorrow and my friend told me that this deduction has gone away but from your article it was reduced from the full
amount to a max of 25K.

If this correct and how did this get passed so quietly... I have not heard of this change at all till reading your document and my tax advise was not aware of it.

Please feel free to call or reply.

My reply:

The issue of limiting the amount deductible for buying SUVs wasn't actually a new thing.  Ever since the Section 179 deduction was increased from $24,000 to $100,000, and people discovered its ability to be used for business vehicles weighing more than 6,000 pounds (a rule actually passed in 1984), environmental wackos started screaming bloody murder that this was encouraging people to buy evil gas guzzling SUVs.

Several months ago, there was a bill passed by a Senate committee with this new $25,000 limit for SUVs, but it never became part of an actual law.  The law that was just signed by President Bush last week was mainly a stimulus bill, with several tax reductions.  In order to achieve the normal goal of being "fiscally responsible," our rulers in Congress had to take away some tax breaks in order to offset the new ones they were establishing.  This limit on deducting SUV purchases was just the thing to fit that need.

I guess the issue of adequate advance notice regarding this change is somewhat subjective.  I know that for well over two full weeks prior to its enactment, there were all kinds of discussions about this very topic on several tax and vehicle websites.  There was so much discussion of just this one item, that most people were ignoring the several other parts of that tax law, many of which are very good for those of us who believe in lower taxes.

Having been in this profession for as long as I have, I have yet to figure out any consistent rationale for the effective dates that our rulers in DC use for new tax laws.  Sometimes, it is at the beginning of the following year, while on other occasions, it's as of the date the law is signed by the President.  We actually have to consider ourselves somewhat lucky that we were given until Bush signed the law, because I have seen several laws over the past decades where similar kinds of restrictions were established effective as of some date several months prior to the signing, based on when a congressional committee inserted that provision into the law.

I hope this clears up any confusion you had over where this new restriction on deducting the cost of SUVs came from.

Kerry Kerstetter

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/28/2004 05:15:00 PM Send this post:

 
Donating Vehicles

I received the following from a client earlier this week:

My husband has acquired a truck that he would like to give to a church as a donation.  The value of the truck is $10,000.00.  He is wanting to know if we can donate about half of the value and except payment from them for the rest.  Also, I can't remember if there is a cap on the amount of charitable contributions per tax year.  I believe year to date we have given approximately $5,000.

My Reply:

There is no dollar limit on deductions for charitable donations.  There is an annual limit of 50% of your AGI, with any excess carried over to the next year.

The rules for donating vehicles were just changed a bit last week in order to cut down on people claiming high Blue Book values for vehicles that were sold off by charities for much less.  They don't actually take formal effect until 1/1/05; but following them now wouldn't be a bad idea as protection against IRS challenge.

If the charity turns around and sells the vehicle after you give it to them or sell it to them at a discount, they must give you a written statement of what that sales price was, which will become the fair market value for your donation.  If you sell the truck to them for less than this amount, the difference can be claimed as a charitable donation.

If the charity actually keeps and uses the vehicle, the value will need to be based on an appraisal if more than $5,000 is being claimed, and other methods (Kelly Blue Book, newspaper ads) if the value claimed is less than $5,000.

Let me know if there are any other questions.

Kerry

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/28/2004 01:42:00 PM Send this post:

 
How our rulers actually see things:

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 10:57:00 PM Send this post:

 
Undecided Voters = Morons

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 09:13:00 PM Send this post:

 
Calif. Prop. 13 Update

Of the 58 counties in California, there are only seven left that will allow people to transfer in their lower property tax base from other counties.

Alameda	San Mateo
Los Angeles	Santa Clara
Orange	Ventura
San Diego

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 09:06:00 PM Send this post:

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 08:48:00 PM Send this post:

 

The Fair Tax supporters have rebuttals to the arguments being used against their proposal to replace Federal income and estate taxes with a national sales tax. 

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 08:44:00 PM Send this post:

 

CBO Releases Cost Estimates of ETI Repeal Bill - As with any such analysis, any resemblance to real life is purely coincidental.  Their static analysis methodology has long ago been so discredited that believing any of their predictions is crazy. Their entire presumption that tax rates cuts always cost the government money are ridiculous because the Reagan tax cuts proved that lower rates encourage more taxable economic activity and higher overall revenue.   

 

Group Asks IRS to Investigate Use of American Heart Association Logo - More proof that some people have way too much time on their hands.

 

 

 

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 08:13:00 PM Send this post:

 
IRS Nails More Tax Scammers

JUSTICE DEPARTMENT SEEKS INJUNCTION AGAINST OHIO MAN WHO ALLEGEDLY SELLS IRS "DOCUMENT DECODER" SCAM

 

"RENAISSANCE, THE TAX PEOPLE" PROMOTERS INDICTED FOR $84 MILLION TAX FRAUD. Promoters Operated Pyramid Scheme; Founder Cooper Arrested Yesterday

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 07:59:00 PM Send this post:

 
We're all evil rich targets in JFK's eyes.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 05:02:00 PM Send this post:

 
"Free Money" From the Government

 

For those who don't recognize this guy, it's that wacko Matthew Lesko who does commercials promoting his books on how anyone can get free money from the government.  The fact that the more money our rulers give away to some people, the more they have to take from the rest of us, doesn't seem to be of any concern to Mr. Lesko.

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 12:53:00 PM Send this post:

 




- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/27/2004 03:10:00 AM Send this post:

 

Dems bash GOP on national sales tax plan - They don't like the idea of giving up the huge power over our lives that the income and estate taxes give them. 

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/26/2004 09:17:00 PM Send this post:

 
Summary of newest tax law

NATP has a good 13 page pdf summary of the tax law that was signed into law last week.  Pages 7 & 8 have the changes in Section 179.

 

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/26/2004 09:09:00 PM Send this post:

 

Are Europeans Lazy? No, just overtaxed.
And John Francois Kerry and his Fellow DemonRat Travelers want us to be more like the "more sophisticated" Europeans.

CA Man Gets Prison Term for Harassing Female IRS Agent - Sending fake poisons through the mail is not the way to deal with a problem auditor.



Indiana group assists anti-war tax protesters - As I've discussed on several occasions previously, I don't advise anyone following the lead of War Tax Resisters Penalty Fund. There are plenty of things we all don't like or support in the Federal government's budget. What would happen if we each held back that portion of our taxes that paid for those things we don't believe in? We would have even more chaos than we already have. That is what our elected officials are supposed to be doing on our behalf; deciding how to spend tax revenues.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/26/2004 01:38:00 PM Send this post:

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/26/2004 10:47:00 AM Send this post:

 
Timing Retirement

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/25/2004 08:38:00 PM Send this post:

 
IRS News On OIC
Check Carefully Before Applying for Offers in Compromise - One of the many popular topics in spam is from scammers promising to wipe out past tax debts. They are as credible as the other kinds of spam.



IRS Revises Offer in Compromise Application Form; Now Available for Use






- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/25/2004 06:13:00 PM Send this post:

 
Thumbs Down For QB Simple Start

I finally had a chance to try out the newest version of QuickBooks, Simple Start. Unfortunately, it turned out to be even worse than I had suspected it would be based on the descriptions of its features.

Here are some of the notes I made as I was testing it, both with the program's sample data as well as a new company file I set up myself.


There are almost no setup preference options to customize things, which is a crucial feature of QB to allow it to work more efficiently, especially in regard to reports. Supposedly, some of the Preference settings can be changed in the full QB program by us professional accountants and then the file sent back to the client to use in Simple Start. This is just plain stupid.


There is no Accountant's Review feature; so clients have to stop using their company files while their accountants work on the copy they are given. This is no better than with Quicken.

No Classes, although the P&L screen says that you can show columns by Class. Even Quicken has Classes, which is where I learned how useful they can be.

Can't show more than one window.

No ShortCuts or Navigators windows.


The only good feature I could find was that the backup is as good as with regular QB; with one compressed QBB file.


Bottom line, this is just a crippled QuickBooks program, with fewer features than even Quicken has. I give it a thumbs down and advise staying away from this program and just using QuickBooks Basic.

Whichever geniuses at Intuit who thought this crappy program was a positive addition to the QuickBooks product line should get their resumes ready.



- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/24/2004 09:28:00 PM Send this post:

 
Expert Stock Pickers
This is similar to the dart board picks that the Wall Street Journal used to compare with those made by high paid professional advisors. More often than not, the dart board's picks beat the pros in terms of return on investment.






- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/24/2004 07:13:00 PM Send this post:

 
Bush's Tax Cuts Are Unfair ...To the rich.





Thomas Sowell takes on the Tax cuts for the rich! class warfare mantra of the Left.





Dealing With Life-Changing Events





For Libertarians, Candidates Offer Little Choice





The States Want to Tax a Tax! - This isn't an entirely accurate description of what some states are considering. They are proposing adding postal services to the definition of what is subject to their sales taxes. This is just one more item that many states are adding to the taxable side of the equation in their search for additional revenue. If some states had their way, every single economic transaction would be subject to the sales tax.





States Betting on Gambling Proposals - Stupid people deserve to pay their fair share of taxes.



Phony donor duped St. Mary's College in big scam. $121 million pledge tied to real estate scheme, report says - Not a smart move by the college; spending money before it has been actually received.




- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/24/2004 07:09:00 PM Send this post:

 
Money is Money?
Some less than ordinary cash payments that weren't very welcome to the recipients.


100,000 Pennies Saved Are 100,000 Pennies Spurned



Old bills create fuss at Taco Bell




- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/24/2004 01:55:00 PM Send this post:

 
SUV Deduction Limit Not As Low As Many Think
I was just reading the latest Federal Tax Bulletin from Kleinrock and their example of the new limited tax deductions for business SUVs illustrates that things aren't as bad as many have been worrying about.

The example in their newsletter is of a $70,000 SUV purchased new in 2005. On top of the $25,000 Section 179 deduction, the owner can also claim the 50% additional first-year depreciation of $22,500 based on the remaining $45,000 cost basis. With the normal $4,500 depreciation for a vehicle, the total cost of the SUV that can be deducted in that first year will be $52,000, with the remaining $18,000 deducted over the following four years.

The big differences to keep in mind are that the 50% additional first-year depreciation is only available for brand new business assets, while Section 179 can be claimed for anything that is new to the taxpayer, including items previously owned and used by someone else.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/24/2004 11:47:00 AM Send this post:

 
Tough Call
It's hard to know which is more frightening; the thought of this elitist snob, who despises people who actually work for a living and considers herself a saint for spending money she inherited, as First Lady, or her gigolo husband in the Oval Office.











- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/22/2004 08:52:00 PM Send this post:

 
Tax Free Home Sales
There are obviously tons of items in the just signed tax law that are of interest to various groups of people.

One that is of great interest to us has to do with people who sell homes that were originally acquired as part of a 1031 exchange. Effective tomorrow, the tax free exclusion of up to $250,000 of gain per person is only allowable if the property was originally acquired more than five years prior to the sale. The seller would also need to meet the test of occupying the property for the requisite two years.

Here is the actual text from the new law:

SEC. 840. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF SALE.

(a) IN GENERAL- Section 121(d) (relating to special rules for exclusion of gain from sale of principal residence) is amended by adding at the end the following new paragraph:

`(10) PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE- If a taxpayer acquired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or exchange of such property if it occurs during the 5-year period beginning with the date of the acquisition of such property.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to sales or exchanges after the date of the enactment of this Act.


This doesn't change or even codify how long a property has to be used for rental, business or investment purposes before it can be converted to a primary residence with no tax consequence. It only says that the Section 121 exclusion is not available if the home is sold in less than five years after its original acquisition.

This will put the property owners in a tricky situation. If it is being used at the time of sale as a primary residence, the entire gain will be taxable, including the deferred gain that had been rolled into the property via the 1031 exchange.

Since primary residences being disposed of are not eligible for 1031 exchange treatment, my initial reaction to this scenario would be to advise the property owners to consider converting the home back to rental usage for as long as possible prior to the sale and then set it up as a 1031 exchange into new rental property that can then be later converted into a primary residence.

This game plan would obviously be a lot of hassle; but the taxes could be substantial if these steps aren't taken. Obviously, the property owners should work with their personal tax advisors to crunch their exact numbers to see if it makes sense.

Labels: 1031

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/22/2004 06:29:00 PM Send this post:

 
Q:

Good Morning!

I have read some of your responses to the 179 deduction and I appreciate you taking the time to help others make wise tax decisions. I have had a stellar year as an employee I have paid a small fortune in taxes to federal and state. I have also been fortunate to sell some stock options and cashed out a deferred comp plan. My taxes due next year are quite significant. As of this week I have formed a single member LLC and will be purchasing heavy machinery over 6,000 GVWR. The business will no doubt take a substantial loss this year due to the lateness of the year and startup expenses. Is it possible that my gross income including the stock sale is too much whereas disallowing me the opportunity to use the 179 deduction to its fullest? Is it possible that AMT could limit the amount of deduction I can take for the 179 deduction.

Again thank you for being so helpful in sharing your knowledge.

A:

There is no high income phase-out for the Section 179 deduction that is claimed on the front of the 1040, as it sounds like yours would be. There is a phase-out for those who claim it on Schedule A, normally as an employee expense.

If you didn't catch the news today, the Section 179 deduction for business vehicles weighing under 14,000 pounds has just been lowered to $25,000 from the $102,000 maximum we had previously.

AMT is the most difficult tax to calculate without some actual number crunching. Capital gains and stock options can trigger the AMT. You should have your personal tax advisor run your numbers for you to see if that will be the case for you.

Another, probably less expensive, way to get a preview of your 2004 taxes is to get a copy of one of the cheapo 2003 tax programs, such as Turbo-Tax, and enter your 2004 figures. It won't be exact; but it will give you a pretty good ballpark idea of where you will be.

Good luck. I hope this helps.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/22/2004 02:44:00 PM Send this post:

 
The Wait Is Over
Bush Signs $136 Billion Corporate Tax-Cut Bill - The new limit for business SUVs under Section 179 will take effect tomorrow, October 23.

More Details: Bush Signs $136B Corporate Tax Cut Bill


Here is the actual text of the provision limiting SUVs to $25,000:


SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER AUTOMOBILES.

(a) IN GENERAL- Section 179(b) (relating to limitations) is amended by adding at the end the following new paragraph:

`(6) LIMITATION ON COST TAKEN INTO ACCOUNT FOR CERTAIN PASSENGER VEHICLES-

`(A) IN GENERAL- The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000.

`(B) SPORT UTILITY VEHICLE- For purposes of subparagraph (A)--

`(i) IN GENERAL- The term `sport utility vehicle' means any 4-wheeled vehicle--

`(I) which is primarily designed or which can be used to carry passengers over public streets, roads, or highways (except any vehicle operated exclusively on a rail or rails),

`(II) which is not subject to section 280F, and

`(III) which is rated at not more than 14,000 pounds gross vehicle weight.

`(ii) CERTAIN VEHICLES EXCLUDED- Such term does not include any vehicle which--

`(I) is designed to have a seating capacity of more than 9 persons behind the driver's seat,

`(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or

`(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to property placed in service after the date of the enactment of this Act.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/22/2004 02:17:00 PM Send this post:

 




- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/21/2004 09:35:00 PM Send this post:

 
The Committee For Justice is giving away some very cool bumper stickers that will still be quite useful around here long after the upcoming election. You can order yours here.





- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/21/2004 08:46:00 PM Send this post:

 
This is an excellent analogy for the Social Security system. Fewer and fewer workers supporting more and more retirees can only have one result.







- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/21/2004 07:39:00 PM Send this post:

 
If he's so willing to give up all decisions over our national security to the United Nations, how is this not possible?






- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/21/2004 07:30:00 PM Send this post:

 
California-based “corporation sole” and “claim of right” programs halted - Another scammer out of business. The Feds are racking up a good number of scalps.



Buried treasure dug up - This woman's investment plan actually beat many stock market investors. She put $50,000 into a hole in her backyard in 2001 and got back $50,000 three years later.



Fair Share & More. The rich are doing their tax-paying part — and then some



Bush Has Until November 2 to Sign ETI Repeal Bill - But he could sign this into law as early as tomorrow, which means the new Section 179 limit for vehicles weighing less than 14,000 pounds will kick in.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/21/2004 04:21:00 PM Send this post:

 
Exchange Questions
A number of issues came up in this email I received recently.

hello, i am writing from rural grayson county, virginia (mouth of wilson 24363). i own 3 small tracts of land. i would like to sell about 2 1/2 acres off 2 of these (5 - 6 A total)to get cash to begin restoring an old log house on one of them. it will either become my primary residence or a rental property. can i take profits from the sale of the land and put them into restoration and avoid capital gains? even though this is small stuff every penny counts!

also, the 3rd lot (2 acres) i just purchased last spring to protect the view from the old house--can one take capital gains exchange retroactively?
if so, for how long?

thanks for your help1 i am a wee small citizen who knows naught about this stuff.

My Reply:

I'm afraid I have to be the bearer of bad news in regard to your proposed plans.

1. The one kind of real estate that is absolutely not eligible as a replacement property is one that will be used as a primary residence.

2. Reinvesting exchange proceeds into improving existing structures is not allowable either. In some cases, the exchange proceeds may be able to be used to construct an entirely brand new structure on property that was previously owned; but even that is a gray area of 1031 exchanges.

3. Reverse exchanges, where the replacement property is acquired before disposing of the old one, are possible. There are different ways to structure them, including the IRS's safe harbor of parking the new property with an unrelated third party. Whichever way is used, it must be set up ahead of time. If you have already taken title to the property, it is too late to try to go back and change that to be part of a 1031 exchange. IRS calls that an "afterthought" because you thought of doing the reverse exchange after you had already bought the new property.

I'm sorry to spoil your plans. Remember that I don't make the tax laws. I just do my best to interpret them for real people in the real world.

You can see many more details on how to properly set up a legal 1031 exchange at www.TFEC.com

Good luck.

Kerry Kerstetter

Labels: 1031

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/21/2004 03:50:00 PM Send this post:

 
Our fire department had its first chance to use the new foam sprayer in a real life situation this afternoon on a pickup truck that had caught fire while pulling a trailer with two horses on Highway 43. It took them only two minutes to put out the flames, saving the truck's bed and the trailer. The driver got the horses out as soon as he pulled off the road into one of our firefighter's driveway; so there were no injuries. The foam sprayer performed excellently and it was good not to see the same kind of results of a similar fire several months ago, when nothing was left but a burned out shell of an SUV.

By the time Sherry and I reached the scene, all of the flames were out, but there were still plenty of soap suds, as can be seen in these pictures Sherry took.


- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/20/2004 10:47:00 PM Send this post:

 




- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/20/2004 10:27:00 PM Send this post:

 
More Missouri Tax Fishing
It's not just from the IRS that we need to be on the alert for bogus tax notices. I just sent this email to a client, with a CC to the Missouri DOR:


Thanks for sending me the copies of the recent notices you received from the Missouri Department of Revenue claiming that you owe them taxes for the years 2000, 2001 & 2002. I'm assuming you sent me copies of everything you received from them, which makes these notices completely ridiculous and extremely unfair and illegal on their face.

When I have seen such claims of unfiled tax returns made by other states, such as California, they have included copies of W-2s or 1099s showing the income that they consider to have been earned inside their state. These Missouri notices give us absolutely no idea of how their tax calculations were made or what income they consider to be Missouri source.

It appears that the State of Missouri is increasingly desperate for tax revenues and is trying to pick on nonvoting out of state residents as an easy source of cash. Sending such bills without proper documentation of the underlying income that they are assuming is subject to their tax is insane. I'm sure they are banking on the shotgun approach to this scheme, assuming that enough people will just send them the money without taking the time to demand a proper explanation.

To straighten this out, I advise calling them at the number on their notices, or writing to them, and demanding that they send you complete written documentation of what they consider to be Missouri source income. We can then review your records to see if they are correct or not and take any steps that may be appropriate to correct the situation. This may possibly require us to prepare one or Missouri non-resident income tax returns, along with amended Arkansas returns to claim credits for the Missouri taxes.

I would contact the Missouri DOR myself, but they would probably insist on having a formal power of attorney authorizing me to act on your behalf, which I would be glad to do; but your contacting them directly would be faster. I am sending them a copy of this email and will be posting this on my blog to let them know that we will not just send them money without proper documentation.

To refresh your memory, here is my blog posting from earlier this year about similar notices some of my clients had received from the Missouri DOR. Those notices didn't have actual dollar amounts of taxes shown.
http://www.taxguru.net/2004/08/missouri-tax-fishing.html

Please provide me copies of whatever information you are given and I will check it against your tax return records.

Good luck.

Kerry

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/20/2004 03:15:00 PM Send this post:

 
No Secrets After Death
I've often discussed the benefits of using a living (aka revocable) trust instead of a will to take care of things after passing away. Saving on probate costs alone makes it one of the best investments around.

One of the other big differences is the ability to keep your very personal information private. Living trusts are confidential documents and are not available to the public. That's not the case for wills, which become public record after a person dies.

TaxProf Paul Caron has an excellent page of links to celebrity wills that anybody can check out. While we may all get a kick out of gawking at the private lives of celebrities, how would you feel if your will were open for scrutiny by anybody in the world, including your neighbors, friends, co-workers, and relatives?

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/20/2004 01:42:00 PM Send this post:

 
Myth About Section 179
I received this follow-up to my earlier message on Section 179 deductions:

Thank you very much for your reply. There are some accountants out there that think section 179 expires December 31, 2004. Was there any truth to this?
Thanks again.

My reply:

There was never any chance that the entire Section 179 was going to be eliminated.

Before this new law, the schedule was for the maximum Section 179 deduction for 2005 to be $102,000 + a COLA for inflation. It was then scheduled to drop to $25,000 in 2006.

I'm not sure how the rumor that Section 179 was ending on 12/31/04 got started, but I have heard it a lot; not just from you.

You can see more on this on my website:
http://taxguru.org/incometax/Rates/Sec179.htm

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/20/2004 01:20:00 PM Send this post:

 
New Issue of Tax Watch Now Online From Tax Foundation - You can download this interesting eight page newsletter here as a PDF file




More states explore tax breaks to benefit organ donors




Teresa's Taxes, Continued. The super-rich really are different.




Tax Relief Awaits Owners Of Commercial Property - There has been too much focus on the negative aspects of the soon to be signed tax law (limiting vehicle Sec. 179 to $25,000). There are some good things in it, such as this change in the depreciation life of leasehold improvements from 39 years to a much more reasonable 15.




And the Budget Says . . . the supply-siders were right all along. - Larry Kudlow.



The tax man and the debt collector team up




THE HEINZ KERRY TAX MYSTERY

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/20/2004 01:10:00 PM Send this post:

 
Retirement Planning
The following email I received hit on a hot topic that I have discussed on several occasions; but warrants another warning.

Hello, I've been enjoying your site the past few weeks after I stumbled upon it. I think I originally hit it when reading up on the impending doom of Social Security.

I live in Northern CA (Bay Area), married with 1 child and another on the way. I'm 35, so still planning on at least 20 yrs until "retirement."

I bring that up, b/c I've recently come to the conclusion that my 401(k), while not a bad deal, is a sweet tax "scam" for the govt if I continue building on a nice nestegg...i.e. all these tax "savings" on pre-tax contributions will be quickly wiped out by taxes during the distribution years. So I've been thinking that although the Roth isn't perfect, I'd be better off only doing 401k up to max of employer match, then going other after-tax routes, particularly the Roth.

But you do raise some concerns re: Roth. With that being the case, are you a proponent of retirement vehicles like annuities, or various whole life products?

Just curious...and again, I enjoy your site.

Regards,

My Reply:

I'm glad you are finding my websites useful.

I'm afraid that advising on the best retirement savings vehicles is far too personalized a task to be able to be accomplished in this forum. You do need to work with an objective (not receiving a commission on product sales) financial advisor who can evaluate your family's needs and situation to come up with the best plan to meet your needs. Each type of retirement product has its own pros and cons to balance out.

While Roth IRAs are fine as just one part of an overall retirement plan, putting everything into them would be very foolish. My initial concerns from when the Roth IRAs were first enacted remain the same. Deferring current tax deductions - or worse still, paying actual taxes on IRA conversions - based on the promise of free pay-outs decades down the road is too much of a gamble for me to feel safe with.

Believing that our exalted rulers in DC will not tinker with that rule between now and when you retire is very naive. Maybe for those who are already in their late 50s or early 60s, that isn't as big of a risk. However, if for anyone younger than 50, I would be very careful trusting that you will ever see completely tax free Roth IRA benefits. I cringe every time I see someone set up a Roth IRA account for a very young child.

I hate to sound like a broken record, but the Social Security system was originally founded with the exact same premise. No deductions were allowed for the payments in, based on the promise of completely tax free benefits later on. As you may know, that was changed by our rulers with no regard for fairness and we currently have Social Security recipients paying Federal income tax on 85% of the benefits they receive, if they qualify as "evil rich" in the eyes of our masters in DC. Since that definition was set as any single person earning over $25,000 per year or married couple earning over $32,000 per year, a lot of evil rich people pay taxes on what was supposed to be tax free income.

My prediction is that there will be a similar "means test" established for owners of Roth IRA accounts, where benefits will be taxed for those qualifying as evil rich, a favorite target of our rulers.

I obviously don't have a crystal ball and do hope that I am wrong in this prediction; but past behavior by our rulers in DC leads me to no other conclusion.

Good luck in setting up your retirement plans.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/19/2004 07:02:00 PM Send this post:

 
Section 179 Total Not Being Reduced
As with all tax changes, the misconceptions are flying around, as with this question I recently received.

Question: Could you let me know when will section 179 decrease from the current $100k deduction?

My Reply:

The overall Section 179 deduction is not going to be reduced at all from its current level of $102,000 per year.

What is going to change is how much of that $102,000 that can be used for vehicles weighing between 6,000 and 14,000 pounds. As soon as President Bush signs the law, it will create a limit of $25,000 per year of the Section 179 that can be used for those vehicles. The new limit will take effect as of the date of signing.

The other $77,000 can still be used for any other kinds of qualifying business equipment, including vehicles weighing more than 14,000 pounds.

I haven't yet seen an announcement of the exact day Pres. Bush will be signing this into law; but I'm guessing it will be very soon.

I hope this clears things up for you.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/19/2004 06:09:00 PM Send this post:

 




- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/19/2004 01:11:00 PM Send this post:

 
Deficit declines $100 billion - From Jack Kemp. People keep forgetting that deficit and surplus predictions are nothing more than WAGs (wild ass guesses) and really mean nothing. As I've said on too many occasion, the supposed Clinton surpluses were nothing more than pie in the sky forecasts based on the assumptions of no more economic downturns ever and a double-digit increase in the stock market for all eternity. Anyone who considers any predicted budget figures to be anything close to reliable is crazy.




Social Security Gets 2.7 Percent Boost - This could end up in a net loss for SS recipients because of the increased Medicare premiums that will be deducted, as well as the income tax on 85% of the full benefits (before Medicare deductions).




sKerry says the presidential election will decide the fate of Social Security - This may very well be true; but not in the way that Lurch means. If anyone's plans will destroy the Social Security program, it is the DemonRats'.




COURT STOPS FRAUDULENT TAX-RETURN PREPARER. Norfolk Preparer Used Sham Trusts to Claim Improper Deductions




L.A.'s Scary 'Cop Tax' Campaign Angers Critics - Different groups use different tactics to encourage new taxes.




Social Security Increase Announced - Not receiving as much publicity as the increased benefits is this bit of news:

The Social Security Administration also announced Tuesday that 9.9 million workers will face higher taxes next year because the maximum amount of Social Security earnings subject to the payroll tax will rise from $87,900 to $90,000. In all, an estimated 159 million workers will pay Social Security taxes next year.

People forget that the Social Security system is set up as a Ponzi Scheme, where all benefits being paid out come from the pockets of current workers. Higher benefits = higher taxes.


- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/19/2004 01:06:00 PM Send this post:

 
Give More to Your Heirs and Less to the Government - A good explanation of charitable lead trusts that I saw in the latest newsletter from the Institute For Justice.



Gambling Goes International on the Internet - Local jurisdictions have very little power to control their citizens' access to gambling over the internet.



COURT HALTS COLORADO COUPLE'S TAX SCHEME - The Feds nail another promoter of the Corporate Sole scam.



CALIFORNIA TAX-SCAM PROMOTER ARRESTED FOR CONTEMPT OF COURT - The Feds are finally getting tough with these promoters of scam tax evasion trusts.