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You Make the Call

Please note that the question and answer provided does not take into account all options or circumstances possible.

This week's question is brought to you by Erin Koplitz, CPA, from our Tax Knowledge Center.

July 24, 2014

Question: Brian operates a dairy farm and has elected farm income averaging in previous years. He used to file as single, but in 2014, Brian married Tabitha. Brian is concerned that he will not be able to use farm income averaging in the current year because of the change in his filing status. Can Brian elect farm income averaging in 2014?

Answer: Yes. A taxpayer is not prohibited from using income averaging solely because of a change in filing status [Reg. §1.1301-1(f)(2)]. Brian must use taxable income as reported in the prior year even if it is of a different filing status. However, to be consistent with the original filing status, the proper set of tax rates must be applied to the base years. Thus, Brian would apply the single rates to the income assigned to the tax years 2011 through 2013.

You Make the Call is written by our tax research experts. Get your question answered!

July 17, 2014

Question: Greg owns a working interest in an oil and gas well. He reported the income from each well on the Schedule C and deducted the intangible drilling costs (IDC). How is the sale of the wells reported?

Answer: Reduce the basis of the investment by the IDC taken and report the sale on Form 4797, Sales of Business Property, Part III. If an oil and gas property is disposed of at a gain, §1254(a) requires that it be recognized as ordinary income (recapture) to the extent of deductions previously claimed for IDC and depletion (to the extent of basis). Any gain is reported on Form 4797, Part III.

July 10, 2014

Question: Tom and Sally send their son to an overnight summer camp for two weeks. They send their daughter to a soccer day camp for a week, where they drop her off at 8:00 every morning, go to work, and then pick her up at 4:00. Are the costs of either of these camps eligible for the child and dependent care credit on Form 2441?

Answer: The daughter’s soccer camp expenses would qualify for the child and dependent care credit, but the son’s overnight camp expenses would not. Employment-related expenses [referring to eligible expenses for the credit] shall not include any amount paid for services outside the taxpayer’s household at a camp where the qualifying individual stays overnight [§21(b)(2)(A)]. The cost of a day camp or similar program may be for the care of a qualifying individual and an employment-related expense, even if the day camp specializes in a particular activity [Reg. §1.21-1(d)(7)].

July 2, 2014

Question: Bill’s father passed away in 2014 and left him a rental property. The property has been depreciated for several years with accumulated depreciation being $15,000. The FMV of the property as of the date of death was $100,000. After Bill places the property in service, will he have to recapture the depreciation on his personal return?

Answer: The rental property will be stepped up or down to FMV on the date of death [§1014(a)(2)] and depreciation will start over as a new asset to Bill at that time. All prior depreciation that Bill’s father had claimed does not affect Bill. The depreciation is not recaptured at any time; it is simply gone as of the date of his father’s death. 

Looking for past You Make the Call questions and answers? Archived questions are available to Members in the NATP Research Archives.

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