Whenever you are unable to meet payments on a debt secured by real estaete, the creditor may foreclose on the loan or repossess the property. A foreclosure sale or repossession, including a voluntary return of the property to the creditor, is treated as a sale of the property on which you must figure your gain or loss. If the property was personal-use-property, the Mortgage Forgiveness Debt Relief Act of 2007 will prevent you from having to declare the 1099-A amount as income on your tax return. If you do not have to declare the conveyance as income, any loss you sustain on the conversion may not be taken on personal-use-property.
If you are personally liable on the debt, and if the value of the property is less than the cancelled debt, you generally realize ordinary income on the debt cancellation, but there are exceptions.
You have a gain or a loss equal to the difference between your adjusted basis in the property and the amount realized on the conversion. The amount realized depends on whether or not you are personally liable for the debt that secures the property.
If you are not personally liable on the debt secured by the property, the amount realized on the conversion includes, the additon to any foreclosure sale proceeds you receive, the full amount of the debt that is canceled as part of the transfer to the lender, even if the fair market value of the property is less than the canceled debt.
You do not realize income from the cancellation of nonrecourse debt upon a foreclosure or repossession. However if, in lieu of foreclosure, the lender offers a discount for early repayment or agrees to a loan modification in which the principal balance of the loan is reduced, the debt reduction results in income from the cancellation of debt even where you are not personally liable on the loan.
If you are personally liable on the debt secured by the property, the amount realized includes the smaller of the cancelled debt or the fair market value of the property transferred to the lender. This is in additon to any foreclosure sale proceeds received.
Where the canceled debt exceeds the fair market value of the property, the excess must be reported as ordinary income from the cancellation of debt, unless the law allows it to be excluded. For example, if you are insolvent at the time of the foreclosure, or the exclusion for restructuring debt on business real estate applies, you do not have to report the debt cancellation as income.
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This publication is issued as a service to our clients and friends. This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes and avoid the IRS, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
Sunday, March 29, 2009
Monday, March 16, 2009
CARRY BACK OF 2008 LOSSES
The Internal Revenue Service announced today that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years.
To accommodate the change in tax law, the IRS today updated the instructions for two key forms – Forms 1045 and 1139 -- that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.
The new provision, enacted on February 16, 2009 as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. The IRS released legal guidance today in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.
“The new net operating loss provisions could throw a lifeline to struggling businesses, providing them with a quick infusion of cash,” said IRS Commissioner Doug Shulman. “We want to make it as easy as possible for small businesses to take advantage of these key tax benefits.”
With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this difficult period.
Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.
The normal two-year carryback remains available if the small business does not elect the special carryback provision. If the loss exceeds the income for the carryback period, the taxpayer can continue to carry forward the remaining balance of the NOL for up to 20 years.
For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.
To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.
There are several methods that a small business uses to elect the new provision as detailed in the Revenue Procedure.
If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009.
Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund.
Corporations with Net Operating Losses may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. The IRS will be closely monitoring these filings and will provide additional staff as needed to process these forms. The IRS will work to issue refunds within 45 days or even earlier to the degree possible.
Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year’s tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer’s return is filed, as listed on the return instructions.
Accelerated refunds paid via Form 1045 or Form 1139 is described as “tentative” because the applications for refunds are potentially subject to review at a later date.
CALL ON ME
The intellectual capital is of general nature and should not be acted upon without professional guidance. As the founder and managing member, I want to be your guide. So if you know someone that is looking for a way to save taxes and avoid IRS audits, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
To accommodate the change in tax law, the IRS today updated the instructions for two key forms – Forms 1045 and 1139 -- that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.
The new provision, enacted on February 16, 2009 as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. The IRS released legal guidance today in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.
“The new net operating loss provisions could throw a lifeline to struggling businesses, providing them with a quick infusion of cash,” said IRS Commissioner Doug Shulman. “We want to make it as easy as possible for small businesses to take advantage of these key tax benefits.”
With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this difficult period.
Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.
The normal two-year carryback remains available if the small business does not elect the special carryback provision. If the loss exceeds the income for the carryback period, the taxpayer can continue to carry forward the remaining balance of the NOL for up to 20 years.
For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.
To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.
There are several methods that a small business uses to elect the new provision as detailed in the Revenue Procedure.
If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009.
Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund.
Corporations with Net Operating Losses may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. The IRS will be closely monitoring these filings and will provide additional staff as needed to process these forms. The IRS will work to issue refunds within 45 days or even earlier to the degree possible.
Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year’s tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer’s return is filed, as listed on the return instructions.
Accelerated refunds paid via Form 1045 or Form 1139 is described as “tentative” because the applications for refunds are potentially subject to review at a later date.
CALL ON ME
The intellectual capital is of general nature and should not be acted upon without professional guidance. As the founder and managing member, I want to be your guide. So if you know someone that is looking for a way to save taxes and avoid IRS audits, call me at (702) 642-8953 or write me at isueirs@aol.com. No Exceptions. No Conditions, No Time limit. No IRS.
Saturday, March 14, 2009
2008 TAX FILING SEASON
Taxpayers are e-filing their Federal income tax returns from their home computers in record numbers this year the IRS announced today. As of March 6, more than 18 million income tax returns were filed from home computers, up 20 percent compared to the same time last year.
So far this year, almost 52 million tax returns have been e-filed, up 6 percent compared to the same time last year. However, the number of people using IRS Free File has fallen from almost 3 million last year to just under 2 million for the same time this year, a reduction of about 30 percent. A number of factors could be causing the decrease in Free File volumes, including national advertising of other free online tax preparation offers and the elimination of electronic filing fees by some software providers.
As of March 6, about 91 percent of tax returns resulted in a refund. This percentage however is usually at its highest at the start of the filing season because taxpayers expecting refunds usually file earlier than taxpayer who must make a payment.
The IRS cautioned that year-to-year analysis of total returns file will be an anomaly this year because last year’s results include those returns filed for the economic stimulus payment. As the year progresses, the IRS expects to receive and process more individual income tax returns during 2009 than in 2007 but fewer than in 2008.
2009 FILING SEASON STATISTICS
Cumulative through the weeks ending Mar. 7, 2008 and Mar. 6, 2009
Individual Income Tax Returns
2008 2009 % ChangeTotal Receipts
63,383,000 63,851,000 0.7%
E-filing Receipts Total:
48,795,000 51,793,000 6.1%
Tax Professionals
33,419,000 33,349,000 -0.2%
Self-prepared
15,377,000 18,444,000 19.9%
Web Usage:
Visits to IRS.gov
90,729,850 116,774,933 28.7%
Total Refunds:
Number
53,176,000 54,638,000 2.7%
Amount
$136.976 Billion $153.579 Billion 12.1%
Average refund
$2,576 $2,811 9.1%
Direct Deposit Refunds:
41,665,000 44,744,000 7.4%
So far this year, almost 52 million tax returns have been e-filed, up 6 percent compared to the same time last year. However, the number of people using IRS Free File has fallen from almost 3 million last year to just under 2 million for the same time this year, a reduction of about 30 percent. A number of factors could be causing the decrease in Free File volumes, including national advertising of other free online tax preparation offers and the elimination of electronic filing fees by some software providers.
As of March 6, about 91 percent of tax returns resulted in a refund. This percentage however is usually at its highest at the start of the filing season because taxpayers expecting refunds usually file earlier than taxpayer who must make a payment.
The IRS cautioned that year-to-year analysis of total returns file will be an anomaly this year because last year’s results include those returns filed for the economic stimulus payment. As the year progresses, the IRS expects to receive and process more individual income tax returns during 2009 than in 2007 but fewer than in 2008.
2009 FILING SEASON STATISTICS
Cumulative through the weeks ending Mar. 7, 2008 and Mar. 6, 2009
Individual Income Tax Returns
2008 2009 % ChangeTotal Receipts
63,383,000 63,851,000 0.7%
E-filing Receipts Total:
48,795,000 51,793,000 6.1%
Tax Professionals
33,419,000 33,349,000 -0.2%
Self-prepared
15,377,000 18,444,000 19.9%
Web Usage:
Visits to IRS.gov
90,729,850 116,774,933 28.7%
Total Refunds:
Number
53,176,000 54,638,000 2.7%
Amount
$136.976 Billion $153.579 Billion 12.1%
Average refund
$2,576 $2,811 9.1%
Direct Deposit Refunds:
41,665,000 44,744,000 7.4%
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