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Real Estate Inherited From a Deceased Spouse? Step Up Your Tax Knowledge

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mst step up in basisDid you inherit real estate from a deceased spouse? The internal revenue code has special tax treatment for valuing the basis of inherited property regardless if you have estate tax filing requirements and no doubt this will impact you.

If the inherited property has appreciated in value, the surviving spouse will generally receive a step up in basis of the inherited property to the fair market value (FMV) at:

        1) the date of decedent’s death or

        2) on the alternate valuation date (within 6 month of the date of death).

 

mst new houseFurther, in community property states (i.e. California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), married individuals are typically considered to each own 50% of the community property. As such, when either spouse dies, the entire value of the community property, including the part owned by the surviving spouse, receives a step up in basis to the FMV. For this rule to apply at least 50% of the value of the community property must be included in the deceased spouse’s gross estate regardless if the deceased spouse’s estate must file a estate tax return.

These rules can come in handy when a surviving spouse is in need of liquid capital. It should be noted that this special tax treatment can have adverse consequences if not handled correctly. Consult your tax adviser for more information.

 

Sources:

IRC 1014

IRC 2032

Publication 551

Publication 555

 

LLC vs S Corporation – What’s the difference?

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scorp llc door

Most every business start-up has come across the question “LLC or S corporation?”.

While this is a very common question, the response is often different depending on who you are talking to.

It should be noted that an LLC might work for some while an S corporation could be better for others – there is no “one size fits all” approach to entity selection.

In short, here are a few pro’s and con’s for the LLC and S Corporation entity structure:

 

LLC –

  • PRO – Divide profit as members see fit
  • CON – Passthrough income subject to self-employment tax if member has personal liability for debts of LLC or actively participates in trade or business of LLC

S Corporation –

  • PRO – Passthrough income is not subject to self-employment tax. Only employee-shareholder “reasonable compensation” subject to payroll taxes.
  • CON – Only issue single type of stock and must distribute profit based on percentage of stocked owned

Of course there are many more pro’s and con’s for each entity selection – feel free to call us with any questions and will be happy to discuss more (800) 425-0570.

For more related information visit the following links:

http://tiny.cc/xjz22x   IRS: Partners’ Share Of LLC Income Is Subject to Self-Employment Tax

http://tiny.cc/smz22x  5 Common Objections to Forming a Corporation or an LLC

 

 

#Marijuana: High On #Taxes

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pot sales

Legally selling marijauna? Federal law prohibits deductions for business expenses such as rent, office expenses, etc. however the IRS concedes that excise taxes levied by states on the sale of marijuana can be written off due to the fact that the tax is a reduction on the amount realized in the sale. Currently the state of Washington charges and Colorado charge a 37% and 15% tax respectively on the retail sale of marijuana. What is also notable is that the IRS will allow a deduction for the cost of the marijuana that is sold but not forfeited – a taxpayer in California had his medical dispensary raided by the feds and was not allowed to deduct the cost of the marijuana that was seized due to the fact that there was no sale.

Read more on Marijuana taxes….