How Do I Report the Sale of an Inherited House?
Happy Memorial Day. Keeping in mind all the hot dogs and beer you're going to have (already had?) this weekend, we'll keep things simple. We'll deal with inherited property, Keogh contributions, spinoff stock and a beginner's mutual fund tax issue.
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I Sold Inherited Property
How do I report the sale of inherited residential real estate? I did receive a
Investing in a KeoghI have a duplex apartment that I rent out. Can any portion of the rental income be invested in a Keogh? Most of my income comes from a salary from my incorporated business (not related to real estate). -- Cheryl Wingate Cheryl, A Keogh is a self-employed person's pension plan. The amount you can contribute to it is based on a percentage of your self-employed net earnings. It doesn't matter where the money comes from. "But net is the magic word in determining your contribution level," notes Fleming. Your net income is what's left after expenses and self-employed income tax. You can contribute 13.043% of that net number.
Basis in a SpinoffCan you shed some light on the issue of calculating the cost basis of a stock after spinoffs for tax purposes? -- Susan Katz Susan, Most companies today will do this spinoff calculation for their shareholders. But, in general, the cost basis of the original stock is proportionally allocated between the new stocks using the fair market value on the date of the spinoff. Here's an example: Let's say a few years ago you purchased one share in Company A for $9. Yesterday, Company A spun off a division. Now you have two shares of stock. After the spinoff, the main company's stock trades at 40 a share, and the spinoff division trades at 20. Your total post-spinoff investment is $60. Two-thirds of that $60 is in the main company's stock. So two-thirds of your original (pre-spinoff) cost basis is allocated to the main company's stock. That means your new basis in that stock is $6. The spinoff share, one-third of your $60 investment, will get the remaining one-third of your original investment. The basis in your spinoff share is $3. If the company decides to calculate things differently, it should let you and the other shareholders know.
Options TraderAs a full-time options trader, can I mark to market my option trades? What if I don't own any options on the last day of the year? Would I be marking to market the hundreds of trades I made throughout the year even though I own nothing on that last day? None of the options I traded still existed on that last day; they all expired. -- Greg Ray Greg, Mark to market is a tax technique that allows taxpayers to report certain trades as if they were sold on the last day of the year -- even if they're still in the portfolio. But if you don't have any open positions at year-end, you don't have to worry about marking your trades to market, notes Ted Tesser, a certified public accountant in Boca Raton, Fla., and author of The Trader's Tax Survival Guide. As you point out, there is nothing to mark to market. Your completed trades would have been accounted for as realized transactions. Same goes for the options that expired worthless, notes Tesser. So mark to market is not an issue for you.
Mutual Fund Taxes 101I just invested in a non-retirement mutual fund. Will I have to pay taxes on both dividends and capital gains? Also, will the fund company report those earnings to me on an annual basis? -- Larry Young Larry, Here's a basic rule of thumb: Any income you receive is probably taxable. More specifically, all dividends and capital gains are taxable. Even if you elect to reinvest your dividends and capital gains, you still owe tax on those amounts. "But I don't ever see that money," you say. I know. Think of it this way. The fund made a dividend distribution. You got a check, so you now owe taxes. Then you decide to put that distribution right back into the fund. When a mutual fund company has a reinvestment program, it just cuts out the middle steps for you. It does not cut out the taxes owed. A mutual fund is a pass-through entity for tax purposes. That means any income the fund generates must be passed on to its shareholders. So a fund does not report earnings. It's not supposed to have any. But mutual fund companies are required to send annual and semiannual statements to their shareholders detailing performance and holdings, says John Collins, spokesman for the Investment Company Institute, the mutual fund trade organization. They are not required to
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