CAVEAT EMPTOR OR BUYER BEWARE!
IRS tax liens on real estate follow the property when it is sold as one buyer learned the hard way. A recent buyer purchased a home in foreclosure after the IRS had recorded a tax lien on the property two years previously. The courts allowed the IRS to enforce the lien against the new owner. (LN Management LLC Series 7241 Brook Crest, D.C., Nev.) Always search for tax liens before buying foreclosed property.
EASEMENTS NOT SO EASY.
A partnership conveyed a conservation easement to a charity. The deed terms set forth a formula to divide the proceeds from a sale if it became impossible for the easement to continue as a conservation of land. The formula strayed from the IRS regulation requiring the easement be protected in perpetuity. The partnership, and thus the partners, lost their charitable deduction. (Cottonwood, LLC, TC Memo. 2020-115). The IRS is stepping up its audit of charitable easements. T’s must be crossed, and I’s must be dotted.
TAX COURT RESCUED THIS DONATION.
The Tax Court ruled that substantial compliance with the appraisal rules saved the charitable write-off for a real estate developer. The developer donated acreage to a nearby town. The IRS challenged the appraisal because it omitted the contribution dates and the required statement that the appraisals were done for income tax purposes. This time the Tax Court decided the omissions were not fatal to the charitable contribution. (Emanouil, TC Memo. 2020-120). Do not plan on getting this lucky. The dates and statement were easily included and should not have been omitted.
SIX YEARS OF BLOOD SWEAT AND TEARS YIELD SAD TAX RESULT.
A couple purchased a historic mansion. They spent 6 years and much money restoring the grand structure. No one lived in the house during the renovation period. So, the couple didn’t use it as a residence, nor did they rent out any portion of the mansion. The couple sold the house for a large loss and deducted the loss as an ordinary loss from a rental business. The court disagreed with the taxpayers and classified the loss as a capital loss. A capital loss can only be deducted against capital gains and $3,000 per year of ordinary income. If the couple does not have substantial capital gain income, they may not live long enough to deduct the full loss.