Friday, March 15, 2013

Depreciation for a Park Model

Q.  It seems to me I should be able to depreciate my Park Model as a trailer, using a 5 year life. My tax preparer has doubts. What is your opinion?

A.  I think your tax preparer is using sound judgement. Park Models are almost never moved, and since they usually become residential rentals, the MACRS life of 27.5 years is most likely the right choice. I realize many people want to depreciate these assets as quickly as possible, but stop and think in the long term for a moment. If you write the assets off in 5 years, you will have very little in the way of expenses to shelter future income. As raging inflation is bound to rear its ugly head at some point, you will ask more for rent, and have less to write off. Just think about it.

PS. Since my original answer, the Tax Court has disallowed depreciation of RVs. See Jackson, T,C, Memo 2014-160, August 7, 2014.

Wednesday, March 13, 2013

Schedule D Woes

Q.  I have been trying to fill out Schedule D, but the instructions keep referring to Form 8949. I only have a couple of stock sales, why are they forcing me to use these forms, when all I want to do is plug in the figures and be finished with it?

A.  Your goal is exactly what my goal is, but regrettable, the IRS has different ideas. Although I can't tell you the exact reason, I suspect it has something (perhaps everything) to do with brokerage firm reporting requirements  Have you noticed that Form 8949 refer to the boxes the brokerage firms are putting on the 1099-B forms?

If you're using software, you will have no choice but to fill out the 8949 forms to get them to transfer to Schedule D. Reporting sales of assets used to be somewhat straight forward, but now it has become a real challenge. Good luck in your endeavor!

Tuesday, March 12, 2013

Late Arriving Forms

Q.  Honey, I filed my return last week and a 1065-K1 form just arrived showing a small amount of income. Shall I just forget about it or???

A.  The answer depends on your comfort level. I prefer to take steps immediately to remedy the situation even if I need to amend the return. If you do so by April 15th, you will owe no interest on the additional tax. If you do nothing, the IRS computers will eventually catch up to you. Since the amount is small, there should not be any penalty, but they will charge you the additional tax plus interest. The problem with waiting for the IRS is they are usually about 2 years behind.

One other comment. Please check the title on your K-1 form. I find about half of these are held in retirement accounts such as IRAs etc. In this case, the item is non-reportable and you need do nothing.

Monday, March 11, 2013

RV Parking at Fraternal Lodges

Q.  Can payments made to fraternal organizations who provide RV parking qualify as  charitable donations?

A.  There are a couple of considerations here:

  • Contributions which benefit the donor are not deductible, unless the benefit received is the lesser of $9.90 (the 2012 amount) or 2% of the total contribution.
  • The IRS will no longer consider cancelled checks as proof of donation. The recipient organization must provide a receipt or letter stating the date made, and amount of the contribution, that no benefit was received, and it must be received contemporaneously.

In my opinion, I would never take a "donation" for RV parking as a charitable contribution. Most of these fraternal organizations are run by volunteers who give generously of their time. Quite often they are overwhelmed, receive no compensation, and burdening them further with requesting contemporaneous records might be stretching their generosity.