With summer just around the corner, Tax Forum addresses a sailboat question this week. We also have a good dog-ate-my-homework kind of excuse for the
Internal Revenue Service
, as well as an index option issue and a question about deducting the costs of attending a shareholder's meeting.
And did you know someone wants to impose a tax on your cheeseburger?
Chew on that, then send your questions and comments, along with your full name, to
Come Sail Away
I live in Los Angeles and am interested in living on my sailboat. Can I qualify for a home mortgage interest deduction if the sailboat is my primary residence? -- Tom Smuts
I can hear the lulling swish of the waves now.
If you do decide to live on the ocean blue, your sailboat can qualify as your main home. In fact, your principal residence can be anything, including a condominium, a cooperative apartment, a houseboat or a trailer, as long as you live there the majority of the time, says Rande Spiegelman, personal financial services manager at
But the IRS will want proof you're actually living on your boat. "The service will probably ask if you own any other residential properties and if you use them," notes Spiegelman. If you do, the service may not buy the boat thing. The IRS might check where you vote, the address on your tax returns, where you belong to social or religious groups, where your kids go to school. If it all points to the location of your boat slip you should be fine.
In addition, you must be able to prove the mortgage was taken out specifically for the boat. If so, then you can take that mortgage interest deduction, says Spiegelman.
Section 163 for more on this interest deduction.
The Dog Ate My Return
I sold 500 shares of Compaq (CPQ) in my account at a loss. The same day I intended to buy 250 shares of CPQ in my mother's account, but accidentally bought the 250 shares in my account. That's a wash sale. But I immediately corrected the error, sold the 250 shares in my account and bought them in my mother's account. I wrote a short memo for record and attached copies of all the transactions. Does that suffice for the IRS? (This is the first mistake like that in five years.) -- Don Gordon
I have to tell you I wasn't buying this at first. "But believe me, I have heard worse," says Ted Tesser, a certified public accountant in Boca Raton, Fla., and author of
The Trader's Tax Survival Guide
. Like "the dog ate my tax return."
Regardless, I'm not sure you really have an issue here if your intention was to liquidate the holding. Even if you can't take the loss on the first sale, you can add it into the cost basis of the second purchase (the one meant for your mother's account).
But remember, the wash sale only matters if you're holding the security at the end of the year, or repurchasing within 30 days of the end of the year. If you're not, you don't have to worry.
If, by chance, you are still holding CPQ at year-end, "then by all means try the excuse," suggests Tesser. "I have seen worse excuses fly."
Are Shareholder Meetings Deductible?
Are the expenses associated with attending a shareholder's meeting (such as airfare, lodging, food, etc.) tax deductible? -- Bruce Emerson
In most cases, if you are an investor (or potential investor) in a company, you cannot deduct the costs associated with attending a shareholder meeting, says Spiegelman. Nor can you deduct the costs of seminars or conventions. So for those of you coming out to the
Money Show in Las Vegas in June, you'll have to foot your own bill.
On the flip side, "If you have a say in the operations of the company or have a legitimate need to confer with management," you can deduct the associated costs, says Spiegelman.
And, if you file taxes as a
trader, you can deduct the costs of these meetings, as well as conventions and seminars, because, for you, it is a business expense.
Index Futures Options
I have a question regarding capital gains on options on index futures as opposed to equity options. Is the OSX an index future, and can I treat the options on that as such? Is there a list of index futures that the IRS recognizes as index futures? -- Narsimha Misra
You've got a bunch of different issues here.
To start, whether you're trading index futures or options on index futures, the capital gains or losses are taxed according to the
Section 1256 rules, says Richard Shapiro, an
Ernst & Young
securities tax partner in New York.
The rules say any gain or loss is subject to the 60/40 rule, meaning 60% of the gain or loss is long term and 40% is short term, regardless of the actual time it's held. (Check out
tax return to learn how to report these trades on your tax return.)
The OSX, or
Oil Service Index
, is on the
Philadelphia Stock Exchange
. You can't actually trade it, but you can trade options on it, says Tesser. Capital gains or losses on these options would be subject to the same rules as above.
Check out the Web sites of the
Chicago Mercantile Exchange and the
Chicago Board of Trade for some listings of futures index products.
Not Flat Tax; Fat Tax
Just as alcohol and tobacco taxes were imposed to curb those indulgent habits,
professor Kelly Brownell believes there should be a "fat tax." Brownell, a director of Yale's
Center for Eating and Weight Disorders
, says if we place a tax on fat, diet-related deaths will drop.
For more grease on his proposal, check out this
section of the
National Center for Policy Analysis
And, hey, why not give it a shot? While you're at it, throw a tax on my morning coffee because my third cup usually gives me the shakes.
TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.