Diane Weber

My father and I are in practice together, but soon I'll relocate and start a solo practice. I'd like to buy some of the equipment I'll need from Dad, but a friend ran into a tax hitch when he did the same thing with his brother a few years ago. He doesn't remember the details. What's the potential problem?

When you buy business equipment from a related party, you can't deduct the cost up front as a Section 179 small business expense. Instead you must depreciate it over time-five years for simple office equipment such as copiers and computers; seven years for office furniture, cell phones, and fax machines; and even longer for more-durable types of equipment. For details on depreciating equipment, see IRS Publication 946, How to Depreciate Property, available at 

									http://www.irs.gov/pub/irs-pdf/p946.pdf

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When family ties boost your tax bill

I bought some shares of stock for $1,000 in 1990, and now they're worth about $30,000. If I give them to my son, will this be considered a gift of $29,000 or $1,000? And on which amount will he owe capital gains tax?

Your gift amount is the shares' full fair market value on the date you hand them to your son; for gift-tax purposes, your $1,000 original cost basis doesn't count. So if you give him the shares now, you're making a $30,000 gift. Because of the annual gift tax exclusion for 2008, $12,000 will escape gift tax ($24,000 if you're married, you and your spouse own the shares together, and you gift them jointly), but the remaining $18,000 (or $6,000) will be a taxable gift. You won't owe tax now (unless this gift puts you over the $1 million lifetime limit for tax-free gifts), but the amount of assets that will escape estate taxes after you die will be reduced accordingly. File Form 709 to report the gift. 

When your son sells the shares, he'll calculate his taxable capital gain by subtracting your $1,000 basis from his profit. So if he sells them immediately for $30,000 and has no other capital gains or losses for 2007, he'll owe tax on $29,000. Your holding period for the stock also transfers to him, so he'll have a long-term capital gain taxable at 15 percent if he's in the 25, 28, 33, or 35 percent bracket. Better still, if he's in the 10 or 15 percent bracket he'll pay no tax at all, thanks to a tax rate reduction that applies to capital gains received in 2008 through 2010.

How to figure gift tax on stock shares

We want to consult a financial planner for advice on how to allocate our investment portfolio, so we're making a list of our assets. Should we include the market value of our vacation home? What about the jewelry my wife just inherited from her grandmother?

There's no concrete rule about what counts as an investment asset, but from a practical standpoint it makes no sense to include property you wouldn't consider selling to generate income. So if you're planning to move into that vacation home once you retire or your wife would never consider parting with her grandmother's jewels, don't include them in your tally.

Which of your assets are true investments?

Heavy flooding in my town recently caused a backup of sewage into a neighbor's house. Does homeowners insurance cover that sort of damage? 

Usually not. But your insurer may offer an optional rider to cover it. This would add $40 or $50 a year to your homeowners premium for each $5,000 of coverage. 

Heavy flooding in my town recently caused a backup of sewage into a neighbor's house. Does homeowners insurance cover that sort of damage?

Author | Diane Weber

Articles

When family ties boost your tax bill

How to figure gift tax on stock shares

Which of your assets are true investments?

An odoriferous gap in homeowners coverage