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Property Owner Tax Savings, Home Office Deduction, NJ Waives Penalties

Berdon Partners 10.20.2014 | eVisor

Real Estate

IRS Extends Election Period for Late Partial Dispositions

More Time for Property Owners to Harvest Significant Tax Savings

As anticipated, the IRS has issued a revenue procedure which extends by one year the period for taxpayers to make a late partial disposition election — giving owners ofcommercial or rental real estate more time to prepare for and reap the tax savings.

Under the previous revenue procedure, which was issued when the regulations were in proposed form, a late partial disposition election had to be made on a timely-filed 2013 tax return.  The latest pronouncement1 was issued in September, after the regulations had gone final, and allows the late partial disposition election to be made on a timely-filed 2014 return.

As noted in the articleNew Tax Rules Call for Quick Action to Reap Serious Tax Savings,[Link to the article] the new partial disposition election in the final regulations potentially provides significant tax benefit by allowing a loss in the year of disposition for the remaining undepreciated basis of portions of buildings and other assets that are replaced or otherwise disposed. 

The recent revenue procedure provides a mechanism to claim a loss for dispositions occurring prior to 2012 by filing a change in accounting method with the 2014 return to make a late partial disposition election for these earlier years.   The extension of the period by one year gives taxpayers additional time to identify these prior year dispositions, and to do the necessary work to quantify the amount of the loss.

 1Revenue Procedure 2014-54

Questions? Contact your Berdon advisor or Marc Ausfresser at 212.331.7639 or mausfresser@berdonllp.com.

Federal Tax

Home Office Deduction Allows for Some Personal Use

The home office deduction, where a portion of a residence is used regularly as a principal place of business, can allow for some personal use according to a recent Tax Court Summary Opinion1.

The petitioner in the case lived in a 700 square foot studio apartment which she used as her place of business. She was not reimbursed by her employer for any expenses relating to the apartment.   She listed her apartment on the employer’s website as her place of business and met with clients and conducted business there. Due to the configuration of the apartment, the petitioner had to pass through the areas used for business for non-business reasons — getting to the kitchen, bathroom, and bedroom areas.  The petitioner even admitted that some areas of the office space were used for non-business purposes. However, the court held that her personal use “was de minimis and wholly attributable to the practicalities of living in a studio apartment of such modest dimensions.”

1 T.C. Summary Opinion 2014-74 Lauren Elizabeth Miller, Petitioner v. Commissioner of Internal Revenue, Respondent. Docket 11018-13S. Filed 7.28.14

Questions? Contact your Berdon advisor or Marc Ausfresser at 212.331.7639 or mausfresser@berdonllp.com.

State Tax

NJ Waives Penalties to Collect Back Taxes

In a move to boost revenue, the NJ Department of Treasury (The "State") is offering those owing back taxes a chance to settle up by offering reduced or, in some cases, no penalties, and no collection or recovery fees. 

Taxpayers with unresolved tax debt are being given from September 17 to November 17, 2014 to pay any taxes owed to NJ for tax years 2005 to 2013. While penalties are waived, any interest owed is not. The State notes that this should not be regarded as an amnesty program.  Amnesty requires legislative approval.  This initiative falls under the discretion of the State’s Director of Taxation. 

The State is sending notices alerting taxpayers to this opportunity.  If you do not receive a notice and want to learn if you qualify, contact your Berdon advisor or Wayne Berkowitz at 212.331.7465 |wberkowitz@berdonllp.com.  You can also visit http://www.state.nj.us/treasury/taxation/fall2014.shtml.

City Tax

NYC Eyeing Pied-a-Terre Tax

Setting its sights on owners of high-priced residences who reside outside the metro area and all over the world, New York is looking at imposing a hefty pied-at-terre tax, up to 4% a year.

The tax would apply to apartments and homes with a current market value of over $5 million.  The tax was proposed by the Fiscal Policy Institute which noted that non-resident owners do not pay New York City income taxes and frequently pay low property taxes. The announcement fueled fears that such an onerous tax could put the brakes on a number of luxury condo projects in the works in Manhattan.       

Questions? Contact your Berdon advisor or Marc Ausfresser at 212.331.7639 or mausfresser@berdonllp.com.