Tag Archives: taxes

A Dozen Deductions for Your Small Business

Small-business tax rule No. 1: Don’t mess with the IRS

By Jeff Sorg, OnlineEd Blog

canstockphoto4831350tax perparation

 

 

(March 9, 2016) – Bankrate.com is sharing their list of 12 tax deductions taken by “savvy small business owners and entrepreneurs.”  This list includes such items as:

  1. Home office
  2. Office supplies
  3. Furniture
  4. Other equipment
  5. Software and subscriptions
  6. Mileage
  7. Travel, meals, entertainment and gifts
  8. Insurance premiums
  9. Retirement contribution
  10. Social Security
  11. Telephone charges
  12. Child labor

Read more about these and other deductions at:  http://www.bankrate.com/finance/taxes/dozen-small-business-deductions-1.aspx#ixzz42QNuyMAy

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For more about Bankrate.com, please visit their website, www.bankrate.com

For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

 All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

Questions and Answers About Oregon’s Nonresident Withholding Tax On Certain Real Estate Transactions

Oregon requires a withholding of tax on certain real estate transactions of nonresident individuals and C Corporations that do not do business in Oregon

txa questionsOregon Revised Statute 314.258 (2007 Enrolled House Bill 2592) provides for withholding of tax on certain real estate transactions of nonresident individuals and C Corporations that do not do business in Oregon. This law applies to conveyances that occur on or after January 1, 2008.

1. What is real estate withholding?
Real estate withholding is a pre-payment of tax paid on behalf of certain Oregon taxpayers selling property in Oregon.

2. Is real estate withholding an additional tax on the sale of Oregon real property?
No. The withholding tax is not an additional tax due but instead a pre-payment of tax, like estimated payments, of a personal or corporate tax based on income.

3. What is the withholding calculation?
The withholding required is the least of three amounts:

  • Four percent of the consideration (sales price);
  • The net proceeds (amount disbursed to the seller); or
  • Eight percent of the gain includable in the transferor’s Oregon taxable income. In arriving at this amount, the authorized agent may rely upon the transferor’s written affirmation of the amount of includable gain.

 4. When is withholding required?
Generally, withholding is required when nonresident individuals or C corporations sell property located in Oregon if the sales price is greater than $100,000. Other exceptions to the withholding requirement may apply. See question 16 below.

5. When is withholding not required?
Withholding is not required if the seller is a pass-through entity such as a partnership, S corporation, limited liability company (LLC), limited liability partnership (LLP), or certain trusts and estates. Withholding is also not required if the seller meets an exemption to the withholding.

6. Is withholding required on a grantor trust?
Yes. A grantor trust is not recognized for tax purposes because the grantor retains substantial control.

7. What is a “seller”?
A seller, also known as a transferor, is a person who transfers, sells, deeds, or otherwise conveys real property to another person.

8. How can I get forms and instructions?
Click here for
2018  forms and instructions or call the Oregon Department of Revenue at 1-800-356-4222 in Oregon, or 503-378-4988.

 9. If the seller moves into or out of Oregon during the year, is withholding still required?
Yes. Withholding is required if the sale occurred or the proceeds were disbursed during the part of the year that the transferor was not a resident of Oregon.

 10. Can sellers whose withholding payment is more than their tax liability get an early refund?
No. Excess withholding cannot be refunded until the tax return is filed. 

11. Does withholding relieve taxpayers from the requirement to file an Oregon return?
No. The seller is still required to file the Oregon personal income tax return, corporate income tax, or excise tax return, whichever is applicable, by the due date of the return.

12. If the taxpayer is exempt from withholding, does that mean they don’t have to file an Oregon return?
No. A taxpayer who sells property located in Oregon must pay tax to Oregon on the income from the sale of that property. If the taxpayer is also taxed by another state, they may be eligible for a credit in their state of residence for income taxes paid to Oregon. Special rules apply for residents of California, Arizona, Indiana, and Virginia. See Forms 40N or 40P, 
Part-Year Residents and Nonresident instructions for more information.

13. Who is responsible for completing the forms related to this new law?
The transferor is responsible for completing the forms related to this new law. The Form 40-WE is used to claim exemption from withholding and the Form 40-CW is used to calculate the amount of withholding required.

14. Is the real estate escrow person responsible to verify any of the amounts shown on the department forms?
No. The authorized agent (escrow person) is not responsible to verify what the transferor claims. The transferor is certifying under penalty of perjury that the statements he or she is making are true.

15. Who must withhold?
The authorized agent handling the transaction must withhold at the time funds are disbursed to the seller. The authorized agent is generally the escrow officer, but is also a qualified intermediary in IRC §1031 exchanges.

16. What are the exemptions from withholding?
Withholding is not required if:

  • The consideration for the property conveyed is $100,000 or less;
  • The transferor is an individual and resident of Oregon;
  • The transferor is a C corporation that has a permanent place of business in Oregon;
  • The transferor intends to defer tax on the gain under Internal Revenue Code (IRC) §1031 or §1033 and, at the time of closing, the property is eligible for such treatment.;
  • The transferor has received advice from a tax professional that there is no tax estimated to be due because the conveyance is:

• The sale of a principal residence and the gain qualifies for exclusion under IRC §121.
• A transfer to a corporation controlled by the transferor for purposes of IRC §351.
• A transfer pursuant to a tax-free reorganization under IRC §361.
• A transfer by a tax-exempt entity for purposes of IRC §501(a) and the transfer does not give rise to unrelated business taxable income under IRC §512.
• A transfer to a partnership in exchange for an interest in the partnership such that no gain or loss is recognized under IRC §721.
• Between spouses or is incident to divorce for purposes of IRC §1041.
• A transfer where the transferor is conveying the property subject to a mortgage, trust deed or land sale contract to a mortgagee, trust deed beneficiary, or land sale contract vendor as part of a foreclosure action, a non-judicial foreclosure, or forfeiture proceeding, or a transfer by a mortgagor, trust deed grantor, or land sales contract vendee in lieu of a foreclosure, with no additional consideration.
• A transfer that results in zero gain or a loss and there is expected to be no tax owed on the conveyance.
• Fully exempt from the recognition of gain under ORS chapter 316, 317, or 318 as explained to the department in writing at the time the transaction is completed (attach explanation to the Form 40-WE).

 17. What form do sellers use to certify they are exempt from withholding?
Use Form 40-WE to certify under penalty of perjury that the transferor is exempt from withholding.

18. Does the law always require withholding when the sellers do not qualify for any of the exemptions?
Yes. However, even if the seller does not meet an exemption, the calculation of withholding may still result in zero withholding. For example, if a property is highly leveraged (e.g. the debt on the property is equal to the sales price plus ordinary closing costs), withholding would not be required because net proceeds disbursed to the seller would be zero.

19. Once the Form 40-CW or Form 40-WE are completed, should they be sent to the department?
Not necessarily. The Form 40-CW is simply a calculation for the transferor to prepare for the authorized agent’s purpose. If there is an explanation needed about the amount remitted, the authorized agent and the transferor may wish to provide this information to the department at that time, but it is not required.

In addition to special requests made by the department, the Form 40-WE is required to be sent to the department in three standard situations. The form should be mailed to us if the transferor claims to be exempt from withholding because:

  • They are a resident of Oregon but have a non-Oregon address;
  • They are a C corporation doing business in Oregon, yet the information available to the authorized agent indicates otherwise; or
  • They intend to enter into a tax deferral under IRC §1031 or §1033.

Mail the Form 40-WE to:

Oregon Department of Revenue
PTAC Compliance
955 Center Street NE
Salem, OR 97301-2555

20. Can sellers who have a lower tax liability apply for reduced withholding?
No. You cannot offset other items to reduce the withholding required. You may, however, be eligible for a refund once you file your return.

21. Does the law require withholding on the sale of a principal residence?
Yes, but only on the amount of gain that exceeds the federal exclusion amount. For joint filers, the exclusion is $500,000. For all others, it is $250,000. Use Form 40-CW to compute the correct amount of withholding.

Reprinted from the Oregon Department of Revenue Web site at: http://www.oregon.gov/DOR/PERTAX/nonresident_withholding.shtml

Caveat: Tax laws are fluid and often vary on the specific circumstances of the taxpayer. Please contact the Oregon Department of Revenue or your tax professional if you have questions or need further assistance.  Due to the nature of publishing on the Internet, blog articles may exist for many years and become outdated.

 

 

Exchanging Real Estate Requires Knowledge Beyond Pre-License Education

By Jeff Sorg

Exchanging real estate is a specialized area of real estate that requires knowledge beyond that given in preparation for a real estate license. In the context of real estate transactions, an exchange will usually be an Internal Revenue Code (“IRC”) Section 1031 Tax Deferred Exchange. The tax deferred exchange involves the transfer of one property for another property – or part cash and part property – as opposed to an outright cash sale. Most exchanges will include commercial or investment property and seldom involve owner-occupied residential property. To qualify as a tax deferred exchange, the properties must be like-kind in nature. Properties are of like-kind if they are of the same type. Generally, when real property held for investment is exchanged for real property to be held for investment, and if the exchange is done properly, there is no gain or loss recognized under IRC (IRC) Section 1031.

Real estate exchanging requires added broker supervision and further training beyond pre-license training. To avoid undue liability, and in the best interest of their client, a licensee should advise their client to seek professional legal and tax advice when exchanging. A real estate license does not qualify an individual to give legal or tax advice.

A real estate licensee needs enough knowledge about exchanging to help make sure the exchange is one of equal value for equal value, which is the foundation necessary for balancing equities. Equity is the difference between what a property is worth and what the owner owes against it. This balancing of equities can be achieved by exchanging one property for another, one property for several properties, or one property for property and cash. Although the exchange allows for equity in the property to provide the down payment, cash is necessary to pay closing costs. As a result, no exchange will be cash free. The necessary cash may be generated from the transaction itself or it can be supplied out of pocket by the exchanging parties. While a transaction involving two properties owned free and clear may seem to be cash free, each property owner must provide the cash needed to close the transaction.

Exchanging property might be the desired method of property acquisition for any number reasons. An example may be a person who is cash poor wanting to acquire a newly constructed investment property by exchanging a currently owned older investment property. Whatever the motivation, or whether the transaction is a simple sale or complicated exchange, real estate licensees must have the knowledge to understand the goals of the exchange transaction in order to advise and represent their clients. When a licensee works with the exchanger’s accountant, attorney, and exchange intermediary to make certain the exchanger’s intent and timing meet state and federal tax code requirements, if a technical problem arises during the transaction or with the IRS after the transaction, the licensee is less likely to be judged liable and to be accused of offering expert advice beyond the scope of their real estate license.

FREE Webinar: Business Taxes for the Self-Employed: The Basics

OnlineEd

The IRS is holding a FREE webinar on Tuesday, March 29 for small businesses, self-employed persons, and independent contractors.  The webinar will include such topics as reporting profit or loss from a business or profession, self-employment tax and estimated tax payments, deducting business expenses, husband and wife businesses, recordkeeping, Schedule C and C-EZ, plus more.

Click here for more information.