Real estate investors regularly pursue new ventures that require substantial upfront investments before generating any revenue. A successful investor might purchase land for a luxury resort, spend hundreds of thousands on architectural plans and permits, and begin construction on facilities designed to serve paying customers. These early expenditures represent legitimate business development costs, incurred with……
Tag: Federal Income Tax
Converting a House to Rental Use
One of the more popular ways to build wealth with real estate is to buy a house with a loan, move into it, fix it up, and then borrow against the higher value of the property to obtain a down payment for a second house. The trick is often to add sweat equity to increase……
Can Judge-Made Doctrine Override Tax Deductions Allowed by Congress?
The tax code provides specific rules for when taxpayers can claim deductions for losses. These are rules enacted by Congress. There are other so-called “judicial doctrines” that allow the courts to override the rules set by Congress. There are several of these that frequently come up in tax disputes, such as the economic substance doctrine……
Distributions From Forfeited IRA are Not Taxable
You commit a crime, you are convicted, and you do your time. Then the IRS steps in to collect taxes. The IRS takes your assets to pay the tax that arose from your criminal activity. As part of this, the IRS seizes your IRA funds. Are you responsible for paying income taxes on the IRA……
Claiming a Casualty Loss for Property You Don’t Own
Natural disasters can be expensive. This is particularly true for those who own or have an interest in real estate. Our tax laws provide some relief through casualty loss deductions and theft loss deductions. But what happens when someone pays to repair property they don’t legally own? This question is particularly relevant when parents continue……
Section 179D Tax Deduction Claimed in Final Year
Architects and engineers who design energy-efficient government buildings can qualify for a Section 179D tax deduction. Technically, it is the building owner who qualifies, but since the government is the owner of the building and does not pay tax, our tax law allows the allocation of the deduction to the designer. This allocation provides an……
Immediate Expensing for Real Estate Costs
When a taxpayer has a capital outlay, they generally want to deduct the expense when the money leaves their bank account or when the liability is incurred. However, the accounting matching principle dictates that expenses should be deducted when the related income is received. The matching principle aligns the income and expense recognition. Our income……
When You Can’t Deduct Annual Business Expenses
Many businesses have significant recurring expenses that occur like clockwork each year. Think of annual maintenance shutdowns for manufacturing plants, seasonal refurbishments for hotels, or equipment rebuilds for industrial operations. While these expenses are predictable and virtually certain to occur, the timing of when they can be deducted for tax purposes isn’t always straightforward. The……
Attorney Fees in Tax Litigation: Jury Says Yes, Judge Says No
In most litigation, each party pays their own attorney fees regardless of who wins the case. This “American Rule” applies even when one party is clearly right and the other clearly wrong. But litigation against the government, such as tax litigation, presents a unique inequity. When taxpayers are forced to defend against an incorrect IRS……