Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 6, 1995 TAG: 9503090018
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Long
A: After discussing this with you, it is my understanding your son's company purchased the computer in 1992, sold it to you in July 1993, and leased it back from you for $600 a year, which you indicate is being reported on your individual Form 1040. My understanding is that the computer is used only at your son's business establishment and is not "Listed Property," which comes under special rules and record-keeping requirements.
You should be able to depreciate the equipment under the Modified Accelerated Cost Recovery System (MACRS) introduced by the Tax Reform Act of 1986, using the table for five-year property with a half-year convention. Since the property was acquired from a related party, it would not have qualified for a Section 179 expense deduction election (which must be made in the tax year the property is placed in service).
Since it appears you are not normally in the business of renting personal property, you would report the 1994 income on the 1994 Form 1040, Line 21, Page 1, and the deductible expenses, including depreciation, in the total on Line 30, being sure to enter the amount and "PPR" on the dotted line next to Line 30.
Under the above assumptions, the allowable 1994 depreciation is $1,600. The allowable depreciation for 1993 was $1,000, which you can still claim by filing an amended 1993 return.
-Answered by Terrence Clem of Miller, Morgan & Co.
Q: What are the determining conditions or factors necessary to qualify an elderly patient in a "nursing" or "assisted living" facility to take these facility charges as medical deductions?
A: The deductibility of care provided by an institution depends on the condition of the individual rather than on the nature of the institution. If a principal reason for being at the facility is to get medical care, then the entire amount paid to the facility qualifies as a medical expense.
If a person resides at a nursing home or other assisted living facility merely out of choice, or because it is the most convenient way for relatives to provide care for that individual, only the portion of the cost which is directly attributable to medical or nursing care qualifies as a medical expense. The remaining cost (that is, the meals and lodging portion) is considered a personal expense and is nondeductible.
Needless to say, the tax court has heard many cases on the characterization of nonhospital costs as medical expenses, because of the unclear line between choosing to live in an institution merely for convenience or deciding to move to the institution because of the need for nursing or medical care.
You should give careful consideration each year to institution costs and determine whether a principal reason for those costs is nursing or medical care. Failing this test, you should request that the facility estimate the amount paid for nursing or medical care apart from the amounts paid for meals or lodging. This will allow you to claim part of the payments as eligible medical expenses.
Categorizing payments as medical expenses does not guarantee a reduction in your tax bill. Only medical expenses which exceed 7.5 percent of your adjusted gross income (Line 31 of the 1994 Form 1040) translate into medical deductions and can actually reduce your taxable income.
-Answered by Mary Anne M. McElmurray of Brown, Edwards & Co.
Q: I bought my home in 1988 for $120,000 (I will use round numbers). In 1994, I sold the home for $131,000. Between 1988 and 1994, I remodeled the house for $10,000. When I subtract the remodeling, real estate agent's fees and closing costs, I have a loss on my house.
As I read Publication 523, Page 2, I cannot deduct this loss from my income. Is my reading correct?
The same publication also states: "This loss has no effect on the basis of your new home." I plan to buy a home in 1995. Does this mean that I will pay tax if I pay less than $131,000 for my next home? Or does it mean that I can buy a home of any price without paying tax on the sale?
A: You cannot deduct a loss from the sale of your personal residence. It is considered a personal loss.
The requirement that you reinvest in a new residence at least as much as the sales proceeds from the old residence only needs to be met in order to defer any gain on the sale of your old residence. Since you do not have a gain on the sale, you do not need to purchase a new residence for more than $131,000.
A loss on the sale of your home will not affect the basis of your new home because the basis of your new home is the price of the new home.
However, the tax basis in your home may not be your purchase price, plus improvements if you have previously sold a home and deferred the gain.
You must file a Form 2119, Sale of Your Home, and attach it to your Form 1040, Individual Income Tax Return, even if you have a loss.
-Answered by F. Fulton Galer of McLeod & Co.
by CNB