Miscellaneous Topics Bus 225K Advanced Individual Taxation 1 Agenda California differences LLCs as partnerships Landlords and 1099 reporting 1411 Imposition of the 3 8 tax 469 proposal Major federal tax reform Plus will be a newsletter for sharing your assigned special topic with classmates 2 California Differences NOL NOLs FTB Form 3805V For NOLs incurred in tyba 12 31 07 NOL carryforward period is 20 years rather than 10 NOLs for tyba 12 31 10 can be carried back 2 years Percent of NOL that can be carried back phases in until by 2013 100 of the NOL incurred in that year can be carried back Budget problems can lead to legislature suspending use of NOLs NOL based on CA deductions such as depreciation 3 California Differences AMT No preference for interest from private activity bonds Depreciation adjustments 4 California Differences Passive Activity Form 3801 similar to Form 8582 CA does not conform to the special rule for real estate professionals Section 179 expensing amounts differ K 1 items may differ between federal and CA SS benefits not taxable in CA relevance in measuring AGI but CA uses federal MAGI for 469 purposes 5 LLCs treated as partnership If checked the box to be so treated or have more than one member and defaulted to that status by not checking the box Thompson 87 Fed Cl 728 2009 acq in result only AOD 2010 02 Owner of LLC is not an interest in a limited partnership as a limited partner Thus not restricted in applying MP tests as would a limited partner in a limited partnership so can use any of the 7 MP tests Query will IRS modify the 5T regulations to provide guidance on how the MP rule tests apply to owners of an LLC 6 Small Business Jobs Act of 2010 P L 111 240 9 27 10 Economic stimulus provisions paid for by a few provisions including a modification to information reporting rule of 6041 for landlords h Treatment of Rental Property Expense Payments 1 In general Solely for purposes of subsection a and except as provided in paragraph 2 a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property 2 Exceptions Paragraph 1 shall not apply to A Any individual including any individual who is an active member of the uniformed services or an employee of the intelligence community as defined in section 121 d 9 C iv if substantially all rental income is derived from renting the principal residence within the meaning of section 121 of such individual on a temporary basis B any individual who receives rental income of not more than the minimal amount as determined under regulations prescribed by the Secretary and C any other individual for whom the requirements of this section would cause hardship as determined under regulations prescribed by the Secretary 7 Health care 1411 Imposition of the 3 8 tax Effective in 2013 Applies to Individuals MAGI exceeds 250 000 if MFJ 125K if MFS and 200 000 for other taxpayers Estates and trusts AGI 67 e exceeds amount at which highest tax bracket in 1 e begins for the tax year In 2010 that dollar amount is 11 200 8 1411 continued Individuals Tax of 3 8 on lesser of 1 2 Estates and trusts Tax of 3 8 on lesser of 1 2 Net investment income for year Excess of MAGI threshold amount Undistributed net investment income for year Excess of AGI dollar amount of where highest income tax rate begins NII defined at 1411 c Can reduce investment income by allowable deductions properly allocable to such gross income or net gain Includes rents and other passive activities Per legislative history does not include such excluded items as Interest on tax exempt bonds Veterans benefits Excluded gain on sale of principal residence 9 1411 Example 1 MFJ 15 000 32 000 126 000 17 000 140 000 excluded 325 000 Lesser of Dividends Interest income Gain from sale of stock Income from passive activity Gain on sale of principal res MAGI A NII 190 000 B MAGI 250 000 75 000 Tax 2 850 75 000 x 3 8 10 1411 Example 2 Modification to Example 1 15 000 32 000 126 000 17 000 140 000 excluded 925 000 Lesser of Dividends Interest inc Gain from sale of stock Income from passive activity Gain on sale of principal residence MAGI A NII 190 000 B MAGI 250 000 675 000 Tax 7 220 190 000 x 3 8 11 1411 Example 3 Modification to Example 1 T only has NII 65 000 92 000 196 000 37 000 140 000 excluded 390 000 Lesser of Dividends Interest inc Gain from sale of stock Income from passive activity Gain on sale of principal residence MAGI A NII 390 000 B MAGI 250 000 140 000 Tax 5 320 140 000 x 3 8 12 469 and 1411 Medicare tax on unearned income eff 2013 1441 c 1 and 2 net investment income includes Gross income from rents Other gross income derived from a passive activity within the meaning of 469 Gains from property dispositions other than used in a T or B Less the deductions allowed by this subtitle which are properly allocable to such gross income or net gain 13 469 and 1411 Planning Rentals likely automatically investment income for 1411 purposes Non rental passive activities MP to avoid investment income extra tax but likely to be subject to the extra 9 tax for high income employees and self employed 14 469 proposal President Obama FY 2011 revenue proposals include Repeal 469 exception for working interests in oil and gas properties Why Distorts markets by encouraging investment in oil and gas Can lead to overproduction which can be bad for the environment 15 Major federal tax reform 1 Flat tax No deduction for mortgage interest No AMT Unlimited carryforward of excess of deductions over income Carryforward amount increased by an interest factor to recognize time value of money of postponed deductions H R 1040 110th Cong a version of the flat tax is similar but converts the loss into a credit Other consumption taxes such as sales tax No deduction for interest expense and interest income not taxable 16 Major federal tax reform 2 Income tax reform may include Repeal of AMT Reduction in home mortgage interest deductions Paid for with elimination or reduction in some of the deductions and special rules that can lead to owing AMT Possible conversion to a credit Rarely do such discussions include any changes to passive activity loss limitation rule 17