The 2022 tax filing season has come and gone, and our research services team once again answered numerous questions addressing a wide variety of tax topics. While the questions we received involved specific tax situations members were facing with their clients, a handful of topics kept popping up repeatedly.
The tax situations that seemed to elicit the most calls were often related to one or more of the following issues:
Section 1031 exchanges. Section 1031 allows a taxpayer to defer gains on the sale of real property used in a trade or business or for investment purposes. Commonly, this is done through a deferred exchange and certain requirements must be met for §1031 treatment. Members often contacted NATP’s researchers for assistance when their clients faced unexpected or unplanned issues that could prevent them from completing the exchange as anticipated.
Basis in real estate following the death of a spouse. Spouses usually own property as joint tenants with the rights of survivorship. In states without a community property statute, the surviving spouse may receive a step-up in basis for half of the property. Members regularly had questions regarding whether there was a full step-up in basis at death and how to establish that basis when time has passed and the property is later sold.
Applying the principal residence tax exclusion to homes converted to rental property. Section 121 of the Tax Code allows taxpayers who sell their primary residence to exclude a portion of the gains ($500,000 for MFJ, $250,000 for all others) as long as certain requirements are met. Our researchers frequently answered questions regarding whether clients could still take advantage of the exclusion when the property was used both as a primary residence and rental property at different times.
The tax impact of dissolving a partnership. When a partner leaves a business being operated as a partnership, it usually results in the termination of the partnership. Our members had questions regarding whether a short-year return is needed or whether new an Employer Identification Number is necessary if the sole owner continues the business activities.
S corporation election procedures. S corporations can elect to pass on their corporate income, losses, deductions and credits to their shareholders for federal tax purposes. NATP members often had questions regarding how the IRS’s rules for making the election might apply to specific client situations and whether an S corporation had fully complied.
Inherited IRAs and required minimum distribution rules for beneficiaries. Generally, the beneficiary of an IRA must liquidate the account by the end of the tenth year following the death of the IRA owner. However, there are exceptions for certain eligible beneficiaries. Our researchers received a few questions from members regarding how the rules and exceptions would apply to specific client situations.
Finally, when asked if there was one type of question, they received more often than others, our researchers responded, “Anything to do with basis. It’s never ending.” Whether it be for returns filed by individuals, businesses, estates or trusts, our researchers got questions from members regarding how they should calculate a client’s basis in all manner of assets.
If you have a federal tax question for our Research Services team, submit it online or call 800-558-3402, ext. 2. Fees may apply. For more information, visit Federal Tax Research Service. NATP also offers a variety of online education options to provide tax preparers with additional information on many of the topics discussed in the above-listed questions.
