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Building Land Allocations for the Little People – The Truth About the 80/20 Rule
If you own real estate, you’re no doubt familiar with that wonderful paper loss called depreciation. But you may not be entirely aware that land cannot depreciate. Alas, you must delete part of the price you paid for your real estate land from your original purchase price to generate your tax deduction. A cost segregation study might be the answer. The study, done by an engineer, can accurately allocate the cost between building and land. This price of the allocation can be cost-justified; after all, it can save you tax. But at lower depreciation amounts, the benefits might not outweigh the cost, or, if you’re a tax pro, your client might not believe it does. You’ve still got a tax return to do. Regulation 1.167(a)-5 tells us that we have to do something: In the case of the acquisition on or after March 1, 1913, of a combination of depreciable and nondepreciable property for a lump sum, as for example, buildings and land, the basis for depreciation cannot exceed an amount which bears the same proportion to the lump sum as the value of the depreciable property at the time of acquisition bears to the value of the entire property at that time. It doesn't really give us much guidance. But you may have seen online or heard somewhere about the old 80/20 rule. That’s right, the tax law says 80 percent of cost gets allocated to the building with the remaining going to land. Only, hold on a second, I can’t find a citation for that one. Is it possible there is no such rule? Then again, Reilly’s 19th Law of Tax Planning says that Reilly uses sarcasm when discussing tax. For the truth about this rule, continue reading here.
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Editor’s Pick: Tax Planner Faces Malpractice Claims Over Decades-Old Tax Advice—What Went Wrong?
In a case that every tax professional should take note of, the prominent law firm Sidley Austin LLP finds itself defending against claims that it provided faulty tax advice over two decades ago, leading to massive IRS liabilities for a family. The plaintiffs, the Cáceres family, are seeking to recover $7 million after settling with the IRS, claiming Sidley’s advice on a complex asset liquidation set them up for disaster. The kicker? The lawsuit was filed over 25 years after the advice was given. So, how are the plaintiffs still able to pursue the case? It all boils down to a claim of fraud—and how that could toll the statute of limitations.
Navigating IRS Penalty Relief and Forgiveness
Yes, the IRS does forgive some tax penalties. The IRS refers to this forgiveness as penalty abatement. Abatement is the act or process of reducing or removing something. In this case it is removing or reducing a penalty. But penalty forgiveness is not a blanket offer that everyone qualifies for the way the radio ads make it seem. There is a process that the IRS has for requesting and granting abatement. It is up to the taxpayer to prove that they qualify for abatement. That’s where you come in.
From The Government And Not There To Help You
The story of James J. Maggard has some interesting and possibly valuable lessons. The one that strikes me as particularly important is that it makes it crystal clear that disproportionate distributions contrary to a corporation’s governing documents will not blow its S election. That does not mean that disproportionate distributions are just fine and that you don’t need to address them. There is a practical lesson about being careful who you take on as fellow shareholders. And there is another slightly odd lesson, that almost makes me want to create a new law of tax planning: Don’t deliberately involve the IRS in your business disputes. Their job is not to help you.
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