YOUR TAX QUESTIONS— ANSWERED

Q. Would a loss of rental income (due to extended power outages) from the winter rainstorms fall under the Disaster Relief umbrella?

A. Unfortunately, loss of rental income due to power outages from the storms does not fall under the disaster relief.

Q. If a 1% interest in a property is transferred from parent to child (or child to parent), do BOTH parties have to reside at the property in order to NOT have the property reassessed? My daughter now lives in Oregon and no longer wants an interest in the property.

A. We understand the question to be about the new law passed under Proposition 19 and the requirements to be excluded from reassessment.

Once our office determines that a change of ownership has occurred, state law under Proposition 13 requires us to reassess the property to its current fair market value as of the date the ownership changed. From the situation you described, where 1% of the property changed ownership (from the parent to the daughter), only that portion of the property that changed ownership would be subject to reappraisal.

Since 1% of your property was transferred, our office would reassess only 1% of the property at its fair market value as of the date of the transfer and deduct the remaining from any existing base year value.

For the property not to be reassessed under the Prop 19 Parent to Child Reassessment Exclusion, the property must be the principal residence of the transferor and be (or become) the principal residence of the transferee (transferee must file a Homeowner’s Exemption claim form within one year of the transfer date to qualify for the Prop 19 exclusion). Also, Prop 19 has a value limit component, so it’s not like Prop 58, where it would be fully excluded. The assessor’s office will work on the value calculation based on the fair market value to determine if the transfer qualifies for the Prop 19 exclusion.

The above questions were answered by San Francisco’s Office of the Assessor-Recorder.

A 1031 exchange to defer gain on the sale of your rental property to invest in a foreign rental property is not allowed.

Additional potential form filings to consider include the FinCEN’s report of Foreign Bank and Financial Accounts (FBAR) for reporting of foreign bank accounts used to deposit and withdraw money from your foreign rental property; the U.S. Bureau of Economic Analysis’s benchmark survey that is due every five years; and the IRS Form 8858, if the foreign rental property is owned by you individually.

Continue to Document Your Support

Good record keeping will help you identify all sources of rental deductions taken, including the cost basis calculations for the rental properties for depreciation purposes. Ready access to this information will help you prepare your financial statements, and file tax returns compliantly and smoothly. In case of an IRS information document request, you will have all supporting documentation on hand to satisfy any requests.

It is imperative to maintain supporting documentation reported on your tax returns. The necessary support you need for any deduction expenses includes receipts, canceled checks, or invoices. If you were ever to be audited, you would need this evidence to prove that you were entitled to what was taken. If in doubt, make a copy and store the supporting documents electronically or have a specified cabinet for your financial and tax information. Although tax records should be stored for at least seven years, we suggest keeping real estate documents for at least the life of the asset.

As with anything tax-related, if the interpretation is unclear or you have questions about potential tax breaks or liabilities, you should seek guidance from a tax professional.

Johnson Le is a CPA with Shwiff, Levy & Polo. He can be reached at 415-291-8600.

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