Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 15, 1993 TAG: 9303160032
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
REPORT SALE OF RENTAL, PERSONAL PROPERTY SEPARATELY
The Roanoke chapter of the Virginia Society of Certified Public Accountants will answer tax-related questions from our readers in a special feature on the Monday Money Page. Send them in writing to Tax Questions, in care of Mag Poff, Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.Q: I am planning to sell my two-apartment duplex home and purchase another. One apartment has been my principal home for 15 years, and the other has been rented. I have been depreciating the building and deducting expenses on the rental apartment.
The duplex I am planning to purchase will be operated in the same way: One apartment will be my principal home, and the other one will be rented.
Will I owe 1993 income taxes on the apartment I am selling at a profit? Or can I defer these taxes since one-half of the new duplex will be my principal home? I am 70 years of age.
A: The sale of the duplex will have to be divided and reported separately as to the percentage of the duplex used as a personal residence and as rental property. The part of the duplex used as rental property will have to be reported as a sale of business property on Form 4797, and the part used as a personal residence will be reported as a sale of a residence on Form 2119.
The basis, or cost, of the duplex that was rented must be adjusted by subtracting the depreciation expense taken since the duplex was rented. The reportable gain on the sale of the rental part of the duplex is determined by subtracting the adjusted basis from the sales price.
The gain on the portion used as a residence is determined by subtracting the cost of the duplex that was used as a residence from that portion of the sales price. This gain may be deferred if the residence portion is replaced by a residence that cost more than the sale price of the residence sold. Because you are over age 55, you may elect to exclude up to $125,000 of gain from the residence portion of the duplex. This is a once in a lifetime election.
You may refer to Internal Revenue Service Publications 523, "Selling Your Home," and 527, "Residential Rental Property."
Answered by Gary Duerk of Brown, Edwards & Co.
Q: With regard to expenses incurred in 1992 as a result of refinancing, involving one loan as a mortgager and another loan as a mortgagee, I would appreciate knowing which expenses related to closing are deductible, such as attorney fees and recording fees.
A: Expenses, such as attorney and recording fees, incurred by the owner in refinancing a property are not deductible. Points paid on a refinancing are deductible ratably over the life of the loan.
Expenses incurred by a lender, who is not in the business of lending money, generally are investment expenses deductible as miscellaneous itemized deductions, subject to the 2 percent reduction, on Schedule A of the return.
Answered by Robert K. Flynn of Foti, Flynn, Lowen & Co.
Q: Many tax-free municipal bonds have been called in the past year before they were due. Some of these bonds pay a premium for early calling. Is this premium taxable income or is it also tax-free income?
A: The premium received in the early call of a tax-exempt bond is not tax-exempt income. Instead, it should be included in determining the taxable gain on the disposition of the bond. This computation would be reflected on Schedule D of Form 1040.
Answered by Reid Ammen of Budd, Ammen & Co.
Q: I have made regular $2,000 IRA contributions since 1983.
In 1986, I opened a Keogh account [for self-employed persons] with a small one-time contribution in a thrift that went under in 1992. The money in the Keogh was then transferred to a bank which - unknown to me - does not handle Keoghs. My money was placed in an IRA. I did not find out about this until a few weeks ago.
Is this considered a rollover? Do I or the bank need to file any papers with the IRS?
A: This is a rollover. Reporting to the IRS is the responsibility of the bank. However, you should report the rollover on your 1992 Form 1040 on Line 16a as a non-taxable distribution.
The permissible types of tax-free rollovers are:
From one IRA to the same or another type.
From a qualified plan to an IRA.
From a qualified plan to a qualified plan through the use of a "conduit" IRA.
From one qualified plan to another qualified plan.
From a tax-sheltered annuity to an IRA or to another tax-sheltered annuity.
The above rollovers may be made only at one-year intervals.
Answered by Kenneth L. Prickitt of Young & Prickitt