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Restaurants Property & Leasehold Improvements
The Emergency Economic Stabilization Act extends 15-year depreciation on qualifying restaurant property and leasehold improvements through 2009. In addition, it changes the definition of restaurant property to include the building itself and not just improvements to the building. Without the 15-year rule, these assets are depreciable over 39 years using the straight-line method.
Report of Foreign Bank & Financial Accounts (FBAR, Form TD F 90-22.1)
Each United States person who has a financial interest in or signature authority over any foreign financial accounts including bank or securities in a foreign country must file this report if aggregate value of these accounts exceeds $10,000 at any time during the calendar year. These reports are due by June 30 of the succeeding year, and there is no extension available for filing the FBAR. FBAR is not to be filed with the filer’s Federal tax return.
A willful failure to file the form is subject to penalties of up to $500,000 and five years in prison. A non-willful failure to file the form is subject to a penalty of $10,000 per year. The new form requests information not previously requested, including the highest balance on an account during the calendar year and the address of the bank where the account is held. FAQs regarding FBAR are available on the IRS website at www.irs.gov
California Estimates Taxes
Starting in 2009, the legislature accelerated estimated tax payments for individuals and corporations by requiring the first two payments to be 30 percent and the second two estimate payments to be 20 percent of the required annual payment. Also, individual taxpayers with AGI in excess of $1 million must pay 90 percent of their current-year tax to avoid underpayment penalty. They do not have a safe harbor of 110 percent of prior year taxes. Using an annualized income installment method may make more sense for such taxpayers if it is not practical to estimate the income for the year.
Surviving Spouse Gets $500,000 Exclusion
For sales on or after December 31, 2007, per the 2007 Mortgage Forgiveness Debt Relief Act, the surviving spouse gets $500,000 gain exclusion if the principal residence was sold within two years of spouse’s death. Prior to this Act, the surviving spouse could take $500,000 exclusion of gain only if s/he had filed a joint return with the deceased spouse for the tax year of death.
Method of Holding Title & Step-Up in Basis
How the couple holds titles has a direct bearing on step-up in basis of the assets: if decedent’s separate property, then full step-up in basis to surviving spouse; surviving spouse’s separate property then no step-up in basis; joint tenancy, then ½ step in basis and surviving spouse guaranteed to inherit; community property then full step up in basis regardless of who inherits decedent’s share; community property with right of survivorship—full step-up in basis and surviving spouse guaranteed to inherit. Please consult your estate attorney regarding method of holding titles for various assets.
Parveen Maheshwari is a Certified Public Accountant. His office is located in Burlingame, CA and can be reached @ 650-340-1400 or parveen@cpamax.com