BTB Tax News Update

Newsletter Topics: (click on the topic title below to jump directly to the topic)

Form 1040X Processing Time Extended
Like-Kind Exchange (Part I Topic)
Divorce Issues (Part I Topic)
First-time Homebuyer Credit (Part I Topic)
Energy Credits (Part I Topic)
CFS TaxTools Discount

Form 1040X Processing Time Extended
Because of higher than expected inventory levels of Form 1040X, Amended U.S. Individual Income Tax Return, the processing timeframe is temporarily extended to 12-16 weeks instead of the normal 8-12 weeks. It seems that the IRS has been inundated with refund claims from taxpayers who purchased a home this year and qualify for the first-time homebuyer credit.

Note: If you are filing an amended tax return for 2008 for your client, attach a copy of the closing statement to avoid some of the delay.

Like-Kind Exchange (Part 1 Topic)
Generally speaking, a like-kind exchange means that property was transferred to another party in exchange for other property that is of a like kind. In theory, at least, the taxpayer’s investment in the “old asset” is continued on in the “new asset.” Thus, while a gain may have been realized in the transaction, the taxpayer does not necessarily recognize the gain for tax purposes. We will review the requirements in Code Sec. 1031 and help define the meaning of qualified replacement property for purposes of a like-kind exchange.

Divorce Issues (Part 1 Topic)
The circumstances surrounding a divorce or separation can be hostile, friendly, or merely civil. But even the most amicable of marital split-ups can be emotionally draining for the parties involved. Although most spouses have the presence of mind to devote considerable attention to the equitable division of high-cost assets, they often fail to carefully consider the tax effects of the provisions of a divorce or separation agreement.  Yet, the tax effects of the decisions made in reaching an agreement will survive long after the agreement becomes final.

Careful tax planning is an essential part of the divorce or separation process. Practitioners with the responsibility for accomplishing the planning are faced with a wide range of relevant tax provisions, affecting such issues as alimony, child support, dependency exemptions, and property settlements. This section is intended to highlight the tax provisions most likely to affect the parties undergoing a divorce or separation.

Custodial Parent Can Unilaterally Negate Noncustodial Parent Rule
A significant provision in amended final Reg. §1.152-4 could be a problem for noncustodial parents for tax years beginning after July 2, 2008. According to amended final Reg. §1.152-4(e)(3), the custodial parent can unilaterally revoke an earlier release (including a release executed in a tax year beginning on or before July 2, 2008) to the noncustodial parent of the right to claim the designated child as a dependent. This new unilateral revocation rule effectively allows the custodial parent to pull from the noncustodial parent all of the federal income tax benefits associated with the noncustodial parent rule - with or without cause.

The amended regulation says such a unilateral revocation is allowed even when the divorce papers clearly stipulate that the custodial parent must release to the noncustodial parent the right to claim the designated child as a dependent.

Example: Tom and Lisa are the divorced parents of Amy. In 2003, Tom and Lisa enter into a separation agreement, which is incorporated into a divorce decree, under which Tom, the custodial parent, releases his right to claim Amy as a dependent for all future years. The separation agreement satisfies the requirements for the form of a written declaration in effect at the time it is executed. Lisa attaches a copy of the separation agreement to her returns for 2003 through 2009.

In 2009 Tom executes a Form 8332 revoking the release of his right to claim Amy as a dependent for 2010. Tom complies with all the requirements of paragraph §1.152-4(e)(3).

Although Tom executed the separation agreement in 2003 releasing Tom’s right to claim Amy as a dependent in a taxable year beginning on or before July 2, 2008, his execution of the Form 8332 in 2009 is effective to revoke the release.

First-time Homebuyer Credit (Part 1 Topic)
Under the Housing Assistance Tax Act of 2008 (2008 Housing Act), eligible first-time homebuyers are allowed a tax credit of as much as $7,500 stemming from the purchase of a principal residence, as defined in Code Sec. 121, after April 8, 2008 and prior to January 1, 2009. The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) increased the credit to as much as $8,000 for qualified homes purchased after December 31, 2008 and before December 1, 2009

We will review the different rules for the 2008 “interest-free loan” and the 2009 true tax credit.

Energy Credits (Part 1 Topic)
The aggregate amount of nonbusiness energy property credits allowed for tax years beginning in 2009 and 2010 is now $1,500. This $1,500 limit replaces the $500 “lifetime limit” ($200 for windows) that applied for 2006 and 2007. We will look at what rules have changed, review the required performance standards, and discuss why an “Energy Star” label does not necessarily qualify for the nonbusiness energy property credit.

CFS TaxTools Discount
The Back to Basics Income Tax Seminar “coupon code” for 2009 is now available. For this year, our students can use the following code (BTB67813). New orders receive a 20% discount for CFT TaxTool products and reorders will receive a 10% discount.

Save Money: Register before the day of the seminar and save $25. As always, advance registration is strongly recommended. Walk-in registrations will be allowed only if seminar materials and space are available. However, due to additional charges incurred for seminar set-up, walk-in registrations will now be subject to an additional $25 service fee.

To read past "Tax Updates", visit BTB Income Tax Seminars' Newsletter Archive

Our Instructors:

Thomas Zoeller EA, CFP, MST	James Hockenberry EA	John Geigel JD, CPA	Jaye Tritz EA, CFP, ChFC

Disclaimer
This publication is distributed with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional advice and assume no liability in connection with its use. Tax laws are constantly changing; are subject to differing interpretation; and the facts and circumstances in your particular situation may not be the same as those presented here. Therefore, we urge you to do additional research and make sure that you are fully informed and knowledgeable before using the information contained in this publication.

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