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 Can the gain from the sale of a 2nd
home be transferred to adjust the basis of the primary home? If not, what
needs to be done for tax purposes?
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 No. The
sale of a second home produces a capital gain or loss; however, the loss
cannot be deducted since a second home is considered personal-use
property and not investment property. Note: The loss from the sale of a
principal residence cannot be deducted either. To obtain tax advantages
from the sale of a second home, the home should be rented out; thus
converting to rental property. Rental property qualifies as investment
property can a loss from the sale of rental property can be deducted
(subject to limitations). The tax-free exchange provisions of Sec. 1031
(which apply to property held as an investment) could then apply to a
transfer of the rental property. Alternatively, you could also sell your
principal residence, move into the vacation home and treat it as a
principal residence, then sell it two years later to take advantage of
the exclusion that applies to a principal residence.
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If I have a capital loss carryover
of $250,000 for 2001 and in 2002 I incur long-term capital gains of
$75,000, can I deduct the entire $75,000 gain from the $250,000 loss?
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Capital losses offset future capital
gains. In addition, generally up to $3,000 may be used to offset ordinary
income. Capital losses are carried forward indefinitely, but cannot be
carried back. For example, if you have a capital gain of $100,000 in 2000
and a capital loss of $75,000 in 2001, you cannot carry back the loss to
offset the gain. If you then have a capital gain of $25,000 in 2002, you
can use your 2001 capital loss to offset the gain. In addition, you may
use an additional $3,000 of your loss to offset ordinary income. Suppose
in 2003 you have no capital gain, you may still use $3,000 of your capital
loss as a deduction against ordinary income.
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Can an individual who has filed
taxes for the last 3 years, but has not paid for those three years, be
subject to criminal charges?
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If a person files a non-fraudulent tax
return accurately, fully disclosing income and expenses, but cannot pay
the taxes owed, there is virtually no chance that the person will be
criminally prosecuted because the person lacks criminal intent. However,
if the taxpayer clearly has sufficient assets to pay the tax but blatantly
fails to cooperate with IRS in the payment of those taxes, the taxpayer
could be engaging in criminal behavior.
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I'd like to sell part (25% to 50%)
of the equity in my condo to a friend because I am having difficulty
keeping up with the payments. Would he be able to claim a tax deduction
for interest he would pay?
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No. You will not comply with the
requirements for the residency exclusion by selling only a part of your
residence so the transaction will be taxable to you to the extent you have
a gain on the sale. Your friend should be able to deduct the interest
expense as an investment unless he lives there as his principal residence,
in which case he could qualify for the mortgage interest deduction for the
purchase of a first or second home.
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My husband and I plan to incorporate
our computer consulting business and set up a home-office. What are the
tax implications when we sell our home?
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Any depreciation taken on the residence
will be recaptured at 25% federal (plus applicable state taxes) and the
residency exclusion will not apply to that portion of your gain. For
example, if you have a $500,000 gain on the sale of your home, you could
exclude the entire amount under the residency exclusion. If, however, you
depreciated your home $50,000, you must recapture the depreciation at 25%
federal and pay $12,500 in taxes; the balance of your $450,000 gain will
be excluded by the residency exemption.
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I am interested in taking part in a
net-based high-yield-investment "game". The game offers an unbelievable
200% return after only 14 days. Will I need to pay US taxes on the
profits?
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Yes, if you are a U.S. resident or
citizen. Regarding the so-called "investment," remember P.T. Barnum's
famous remark, "There's a sucker born every minute!" Also, "A fool and his
money are soon departed!" This sounds like an illegal pyramid scheme.
There is simply no legitimate investment that would return such a whopping
profit and if there was, there would no need to peddle it on the Internet.
Check out all the scam watch websites before giving up any money. If you
are a U.S. resident or citizen, then you are taxed on your world-wide
income. If you are a foreign person, then you do not pay taxes on gains
and profits. This so-called investment sounds like it is foreign source
and if you are a foreign taxpayer, then you'd have no income tax
obligations to the U.S.
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I have been doing two different jobs
for the same company for four years now. The second job has always been
paid as a bonus. Now the company wants to pay me with a W-9 (as an
independent contractor). It this proper?
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No. Your company is changing your
status to an independent contractor for part of your pay and such a change
is improper and could be illegal. Your company must understand the tax
laws with respect to independent contractors verses employees. A company
cannot convert an existing employee to an independent contractor if the
worker continues to perform the same services. Also, You'll pay higher
payroll taxes as an independent contractor.
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