Wednesday, March 03, 2010 First Time Home Buyer Credit update
The IRS has reposted Form 5405 (First-Time Homebuyer Credit and Repayment Credit) with a special note concerning the attachment of the settlement statement. The Form's instructions requires that a signed settlement statement be attached to 2009 returns claiming the credit. The special note recognizes the fact that depending on the jurisdiction the settlement statement may not contain the signatures of the buyer and seller. Where signatures are not on the settlement statement the IRS is requesting that the buyer sign the settlement statement before it is attached to the return. The full note is reproduced below:
"While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and the seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required, the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line." Tuesday, February 16, 2010 Pay-As-You-Go (PAYGO)On February 12, President Obama signed into law the Statutory Pay-As-You-Go Act of 2010. The bill requires that any new non-emergency legislation affecting tax revenue not increase the federal deficit. In other words, any tax reduction provisions must be paid for by other tax increases.
It is interesting to note that the following tax provisions have been exempted from PAYGO:
Extension of the 2009 Estate and Gift Tax provisions;
An Alternative Minimum Tax patch;
A permanent extension of the Section 179 increases; and
Making permanent any middle class tax cuts (i.e. reduced capital gains and dividend rates, educational incentives, elimination of limits on personal and dependency exemptions and itemized deductions, and tax rate reductions). Monday, February 01, 2010 Heckerling Estate Planning ConferenceNeil and I just returned from Orlando Florida where we spent the last week listening to the "experts" regarding the current status of the estate tax and what Congress is planning to do. As you know, from my previous blog, Congress did not act prior to December 31, 2009 and therefore we presently have no estate tax for people dying in 2010. Unfortunately, the experts pointed out the problems with regard to the estate tax suspension for one year but were not able to add any insight as to what Congress may do and when they may do it.
However, they all seem to suggest that if Congress does not act within the next month no legislation will take place until after the mid-term election in November.
The next issue that they discussed was the constitutionality of a retroactive reinstatement of the estate tax law, for people dying in 2010. The general consensus is that since this is not a "new tax" it would be constitutional. Although they all believe that if the tax is made retroactive to January 1, 2010, there would be a number of law suits brought to challenge it.
Married clients, who had standard credit shelter wills, face special problems if they die in 2010 without the tax being retroactively reinstated. This results from the standard language that establishes the credit shelter trust which is based upon the maximum amount to create the minimum estate tax. Since there is no estate tax, the maximum amount would be the entire estate of the first of the spouses to die. This could create undisireable results for the survivor and their children. Therefore, it is important that elderly and infirmed married couples review their wills with competant counsel to avoid problems if one of them passes in 2010 and there is no estate tax.
Finally, the suspension of the estate tax has brought with it "carry-over" basis, which itself creates issues. For example, it is unclear as to whether carry-over basis only applies to assets sold in 2010 of an individual that died in 2010. The law provides that the estate tax and "fair market value" basis returns in 2011 as if the 2010 provisions "never applied." Does this mean that if an individual died in 2010, with no estate tax, and assets are sold in 2011 and later years the basis for those assets are the fair market value on the date of death or alternate valuation date?
There are many issues outstanding . This may be the first time that the phrase "it is what it is" has no meaning at all.
As always we are here to help you and your clients muddle through this maze. Tuesday, January 19, 2010 IR 2010-6 Home Sale ExclusionThe IRS has issued the new Form 5405, First Time Homebuyer Credit and Repayment of the Credit. This form is to be used to claim the first-time and second-time homebuyer credit on 2009 Income Tax Returns. The IRS announced that it will begin processing 2009 returns that claim the credit in mid-February. 2009 returns claiming the credit cannot be filed electronically.
One of the following documents must be attached to the new form:
1. A copy of the settlement statement showing all parties' names, addresses and signatures, the address of the property, the sales price and the date of purchase.
2. For newly constructed homes where a settlement statement is not available, a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.
To qualify for the "long-time resident credit" (the second-time homebuyer credit) the IRS is requesting the following documents to prove the 5 consecutive-year period out of the eight prior years requirement:
1. Copies of Form 1098, Mortgage Statement for the applicable years, or
2. Copies of property records, or
3. Homeowner's Insurance records.
To view a copy of the new form go to the following IRS website address:
http://www.irs.gov/pub/irs-pdf/f5405.pdf
Wednesday, December 30, 2009 2010 Where do we go from here?Here we are on December 30, 2009 and there has been no change to the upcoming one-year repeal of the Federal Estate Tax. If anyone had told me, at any time within the past ten years, that I would be discussing the repeal at this time I would have told them they were crazy. But it appears that the truly crazy people are our elected officials in Washington.
Let me give you something to think about and we would like to hear what you have to say in this matter. There are two possible senarios that we must contemplate:
First- Congress will do nothing in 2010 to the estate tax. If this happens there will be a one year moratorium and many plugs will be pulled. For people dying in 2010 there will be no estate tax, the beneficiaries (with limited exceptions) will inherit assets with a carry-over basis (instead of a stepped-up basis) and gifts over and above the annual exemptions and life-time exemption will be taxed at a rate of 35%. On January 1, 2011 the estate and gift taxes will revert to the rules that were in place ten years ago (Exemption of $1,000,000 and maximum tax rate of 55%).
Second- During 2010 Congress will enact a "permanent estate and gift tax law." Based upon bills introduced into the House and the Senate, in 2009, the exemption may stay at the $3.5 million level, the tax rate will be at most 45%, possibly lower, and stepped up basis will be reinstated.
Generally, the government does not like to pass tax legislation retroactively (unless it benefits taxpayers). Ponder this: A taxpayer dies early in 2010. Congress enacts an estate tax subsequent to the date of the taxpayer's death. What is going to happen?
Will the estate tax be applied retroactively? Will there be some blending of tax rates to soften the blow to the estate? Can you have two taxpayers who died in 2010, both with identical estate values, where one dies before the enactment and one dies after, where their estates are taxed differently?
Welcome to the State of Confusion. Your comments would be welcome.
Bob Katz
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