Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 27, 1995 TAG: 9502280003
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
A: Forward averaging no longer applies. However, here are several options:
You may wish to sell the land on the installment basis, receiving enough of a down payment to pay off your bank loan and taking the rest in the form of a note from the purchaser.
The advantage to this is that you will pay tax on the profits from the sale in the year that you receive the payments. In addition, you may be able to command a higher interest rate on the note receivable than you could otherwise get by investing in a certificate of deposit or other security.
Another idea is to do a tax-free exchange of like-kind property. A simple illustration of this would be to trade the land for another tract of lesser value, having the buyer pay the difference (which you would calculate to be enough to pay off your bank loan plus the tax on this amount) in cash.
In this situation, only the amount received in cash would be subject to tax. There are several variations of this type of transaction. In any event, this type of transaction should be assisted by a CPA and/or tax attorney.
Another idea would be to hold off until late into this year to complete this transaction in order to see if Congress is going to lower the capital gains tax. There is no way to tell if this legislation, if passed, would be retroactive to the beginning of 1995 or will be applied from the date of enactment. If you have the flexibility, you may want to hold off a few months.
- Answered by J. Patrick Budd of Budd, Ammen & Co.
Q: I have two questions concerning estate taxes.
I have received a check from the lawyer stating this is a partial distribution from my sister's estate in the amount of $10,000. Is this amount considered as income or gift on my federal income tax return?
On Virginia estate tax, does the lawyer pay this tax before closing out the estate?
A: Amounts inherited from an estate are not taxable to the recipients, except to the extent they represent a distribution of income earned by the estate. Distribution of the estate principal is usually tax-free. (There can be exceptions for a special category known as income in respect of a decedent.)
There is no federal or Virginia estate tax unless the taxable estate is more than $600,000. If Virginia estate tax is due, it would be paid by the administrator of the estate before distribution of the remining estate principal to the beneficiaries.
- Answered by William Brumfield of Foti, Flynn, Lowen & Co.
Q: I am enclosing my employer's response to my request for clarification of the taxes on my sick leave. As you can see, this does not clarify what I want, and that is: Why was my unused sick leave taxed? My teaching contract was for 190 days per year including 15 days of sick leave. This inclusion leads me to believe that I was always taxed for the sick leave as I accumulated it, and this is taxing it again.
A: Your question asked why your unused sick leave was taxed. Sick leave is normally paid only when you are sick and unable to be at work. The amount of sick leave allowed and paid to you would be taxable income to you. Any unused sick leave would not have been paid to you and, thus, not taxable to you.
Your question is difficult to answer because the response you enclosed from your employer seems to explain how your sick leave payment was computed. According to this explanation from your employer, the taxes withheld from your total sick leave and furlough payment are based on the earned sick leave and furlough actually paid to you.
There is no mention of unused sick leave and no indication that you may have been incorrectly taxed on its accumulation. Sick leave pay provided by your employer through its regular payroll account is taxable income to you and is properly subject to withholding of income taxes as well as Social Security and Medicare taxes.
- Answered by David Wright of Anderson & Reed
by CNB