§1031 Exchange - What Property Qualifies?

Taxpayers can defer any capital gains taxes otherwise due from the sale of business property by reinvesting the proceeds in similar property as part of a qualifying 1031 like-kind exchange. One example of a like-kind exchange is trading in one car for another. However, many taxpayers also participate in like-kind exchanges for real property.

Who qualifies? Owners of investment and business property may qualify for a §1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under §1031.

What qualifies? Both the relinquished property you give up and the replacement property you acquire must meet certain requirements. Both properties must be held for use in a trade or business or for investment, and must be similar enough to qualify as “like-kind.”

Real property and personal property can both qualify as exchange properties under §1031, but real property can never be like-kind to personal property.

What doesn’t qualify? Certain types of property are specifically excluded from §1031 treatment, including:

• Inventory or stock in trade.
• Stocks, bonds or notes.
• Other securities or debt.
• Partnership interests.
• Certificates of trust.

Please note: With like-kind exchanges, gain deferral is mandatory unless the taxpayer fails the like-kind exchange rules. Failure often results when the taxpayer closes on one deal, accepts the money from the deal and then goes on to purchase another property using the proceeds. To avoid this type of situation, you should let a qualified intermediary hold the money instead of accepting it.

Business Tax Due Dates for 2016 Returns

As tax season approaches, remember these deadlines

As you’re preparing for the 2016 filing season, keep the due dates below in mind. Penalties for missed deadlines can be significant. Please note: As a result of various Congressional pro­visions, some of the dates differ from last year.

You’ll also want to note that the extension deadline for Form 1065 remains September 15, as it has a longer extension period—a maximum of six months—rather than the current five-month extension.

C Corporations (Form 1120)    April 18th

S Corporations (Form 1120S)   March 15th

Partnerships (Form 1065)   March 15th

Sole Proprietorships (Form 1040) April 18th*

*Due to the observance of Emancipation Day in Washington, D.C., the 2017 filing date is April 18, rather than April 15, for these particular forms.

Depreciable Business Equipment

What can you deduct under §179?

Purchasing equipment is simply part of running a business. Electing to immediately deduct the entire business purchase instead of capitalizing it and depreciating the asset over its useful life, which is usually several years, could provide substantial tax relief for business owners, especially those who are purchasing start-up equipment.

To qualify for the deduction, property must have been acquired for business use and by purchase. Tangible property that qualifies for the deduction includes:

•    Machinery and equipment.

•    Property contained in or attached to a building (other than structural components), such as refrigerators, gro­cery store counters, office equipment, printing presses, testing equipment and signs.

•    Gasoline storage tanks and pumps at retail service stations.

•    Livestock, including horses, cattle, hogs, sheep, goats and mink.

Generally, off-the-shelf computer software also qualifies for this deduction, as does qualified real property, including leasehold improvement property, restaurant property or retail improvement property.

Generally, you cannot claim this type of deduction if the expense is being used for:

•    Land and improvements.

•    Leased property.

•    Property used for lodging.

•    Energy property.

The total amount you can deduct under §179 for most property placed in service in tax years beginning in 2016 generally cannot be more than $500,000.

The 2016 Tax Filing Season is Upon Us!

Here are some quick tips:

  • The standard deduction remains at $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly. The standard deduction for heads of household rises to $9,300.
  • The limitation for claiming itemized deductions on 2016 individual returns begins with incomes of $259,400 or more ($311,300 for married filing jointly; $285,350 for heads of household; and $155,650 for married filing separately).
  • The personal exemption for tax year 2016 rises to $4,050, up from $4,000 for tax year 2015.
  • The annual exclusion for gifts remains at $14,000 for 2016.
  • For 2016, the maximum earned income credit is $506 for taxpayers with no children; $3,373 for taxpayers with one child; $5,572 for taxpayers with two children; and $6,269 for taxpayers with three or more children.
  • The standard mileage rate for medical and moving purposes decreased to 19¢ per mile for 2016.
  • For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.
  • For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.
  • Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000.

The Rise of Identity Theft and Tax Scams - Part Four

IRS Relaunches IP PIN Tool
Things to keep in mind if you were a victim of identity theft

The IRS has relaunched the Get an Identity Protection Personal Identification Number (IP PIN) tool with a stronger authentication process to help protect taxpayers. An IP PIN is given to taxpayers who are confirmed identity theft victims and to certain taxpayers who opt into the program. The six-digit IP PIN adds an additional layer of protection for the social security number.

The relaunched tool uses a multi-factor authentication process that will help prevent automated attacks. If you are a confirmed identity theft victim or have opted into this program, keep an eye out for an IP PIN notice in the mail. Also, remember to provide Taxlink with this notice when you receive it.

In addition, if you were or believe you may have been a victim of identity theft in 2016, here are some tips to help you prepare for the next tax season:

•    Check credit reports.

•    If you moved, be sure to file your change of address with the IRS using Form 8822.

•    File early in 2017.