Q:  I received a stock award valued at $8,350 (5000 shares ata FMV of 1.67) and I elected the 83(b) option in year 2000 and paid tax. The company went belly up in 2002 and the stock that I previously paid taxes on was worthless. How do I claim this stock loss on my 02 return?

A:  You will declare a capital loss on Form 1040, Schedule D (probably $8,320 or so) - either short-term or long-term depending on whether you held the stock for 12 months or longer before it became worthless (in which case it would be long-term).

Q:  May I rent my home to my business for monthly meetings (12 days a year) and not claim the business income?. Do I have to claim it as income on my personal tax return?

A:  As long as you rent real property to an independent third party for less than 14 days a year, you do not pay taxes on the income. However, if you rent your home to your business, the government could disallow the transaction as a sham, because the transaction lacks economic reality.

Q:  I would like to purchase real estate and keep trading it for other real estate, but the real estate agent said that a Section 1031 exchange would not work. They said that after we sold the first property, we had to hold the second property for two years. A friend of mine told me that this was not true if we were an LLC.

A:  Under IRC Sec. 1031, you hold property for investment not as a residence, so the two-year rule does not apply. However, you need to exchange property held for investment for another property to be held for investment. Quickly buying and exchanging properties without holding them for investment (there is no math formula, but usually at least 12 months is considered safe) could disqualify Sec. 1031 treatment.

Q:  I sold stock for my daughter and she incurred a capital loss in 2002. However, she does not have much income and I'd like a way to combine her 2002 capital loss with my existing 2002 losses and my other daughter's capital gain. Can I do this?

A:  If this was your daughter's stock, then she's treated as a separate taxpayer and you cannot combine her loss with gains earned by yourself or another child. Your daughter may carry forward the loss to future years under the capital loss carryover provisions. Capital losses may offset capital gains, plus up to $3,000 of ordinary income, per year, on a going forward basis.

Q:  II am an H1B visa holder. I bought a home in my country of nationality and pay mortgage interest on the home. May I deduct the interest when I file my U.S. taxes?

A:  I assume you are a U.S. taxpayer. If so, then you can deduct qualified interest on a first or second residence, so, if the property in India qualifies as either a first or second residence (it is used by you or your family as a home and is not rented out as investment property), then you can deduct the interest, provided it is qualified interest (defined by the tax code). I have articles on my website discussing this issue. Also, check out the IRS website, www.irs.gov for on-line and interactive publications that can assist you.

The browsable version of this page: May, 2003 FAQ

All contents copyright © 1995-2003 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.