 |
I just completed a 1031 exchange in which I traded a five-unit
apartment building for a single-family dwelling. How long must I rent the single-family
dwelling to comply with exchange rules? Eventually, I want to occupy the house as my
personal residence.
 |
|
 IRC Sec 1031 does not contain express time periods. Most advisors
suggest that you rent out the replacement property (in your case, the single-family
dwelling) for at least one year. Make sure you treat the property as a rental, which means
applying for a mortgage and insurance as a rental and not as your principal residence and
actively marketing and renting the property.
|
|
|
I am a singer on a cruise ship and have been out of the U.S. for over 330 days this past
year, traveling around the world. What is my "principal country of residence"
for purposes of Form 2555 (Foreign Residency Exclusion)?
|
|
Unfortunately, you are probably
not a resident of a foreign country, a prerequisite to claiming the foreign earned income
exclusion. The foreign residency exclusion applies to the first $84,000 of earned income
while a U.S. taxpayer is a resident of a foreign country. In general, to qualify you must
spend at least 330 days during a consecutive 12-month period as a resident of a foreign
country.
If there is a foreign country where you spend your non-working time, that would
probably be your country of residence. A ship is not a country and there have been cases
denying the foreign earned income exclusion for those working on ships because they do not
have a foreign country of residence.
|
|
|
We live in a community property state and I have
substantial separate property. Should the tax generated from separate property income be
paid from the separate property income if a joint return is used?
|
|
It is not necessary to
pay the tax arising from the income generated by separate property with separate property
funds, although there could be non-tax community property issues that arise if community
or marital property assets are used to pay taxes on separate property income.
A joint return can be filed regardless of whether the couple's income is considered
separate property or community property under state law concepts. Filing a joint return
does not transmute separate property into community property. |
|
|
What
are the U.S tax benefits of forming an offshore company?
|
|
This can be a complicated issue.
For a U.S. taxpayer with income from U.S. sources, an offshore company is usually and
expensive waste of time. For a non-U.S. taxpayer, a properly structured offshore company
could have certain tax advantages, especially to eliminate estate taxes.
For a person engaged in business with partly U.S. source and partly non-U.S. source
income, there could be advantages to an offshore company if non-U.S. taxpayers own a
majority of the company, measured by vote and value.
|
|
|
My husband owns a cleaning
company that has been set up as an S Corporation (taxed as a "flow-through entity).
When he takes draws out of the company, how are they classified? Are they owner draws or
dividends or something else?
|
|
Technically, they are "something else" although
people often refer to distributions as "dividends." Your husband is either paid
a salary or he receives a salary, plus taxable income at the end of the year which he
takes into income. His "draws" from the business during the year are not
decisive from a tax standpoint. He must report his pro-rata share of the income from the
business, whether or not he actually receives draws throughout the year on this amount.
The S corporation reports a shareholder's pro-rata share of income and losses on a K-1
form.
|
Sec. 1031 Exchange Time Limits
