Tax Question

[Jamen]

I have a question for you tax experts. There is a wealth of knowledge on here and i am hoping someone can better explain this to me. My mom called me Friday confused over her and her husband's tax returns so i went up to take a look at them. I am not the best tax person but can navigate the forms. We both use the same CPA he tried explaining it to them, but it went over their heads because he was using accounting lingo, they didn't fully understand and there was a line of people behind them to get theirs signed so they left. They will be setting up another meeting with him to try and understand this.

There may be a good chunk of info missing but i will try my best to explain it with what info i have. My mom is retired, step dad still works. They own a LLC and operate a small resort. Its just their camper along with 2 others. They have had it i think 3 full years now. The part they are very confused about is there was a sizeable amount of money on their forms in capital gains. Thet did not sell any stocks or land or anything that would justify normal capital gains. The CPA said something about "The Base" and after owning it for X number of years is where this amount comes from.

I looked through all the forms to try and trace back where this number came from but had no such luck. My questions are if a property is used for profit are capital gains assessed if the land value goes up? They have made some sizeable improvements to the property in terms of money they put in versus what little they get back in rent. Would the improvement of the land be a reason why?

It is beyond my little knowledge of taxes.

Thanks
Jamen

 

[Pucky Freak]

Its just their camper along with 2 others.

2 other what?

Time to switch accountants. This person talks over their heads, and let them walk out of his office without understanding what they were signing.

To answer your question, my guess is that they own a mutual fund. The mutual fund manager(s) buy and sell individual positions within the fund. When those transactions occur, it triggers capital gains.

Another place to look is the property improvements they made. How were those funded? If they sold something to fund them, it’s possible that whatever they sold was at a profit, again triggering capital gain.

 

[Jamen]

2 other what?

Time to switch accountants. This person talks over their heads, and let them walk out of his office without understanding what they were signing.

To answer your question, my guess is that they own a mutual fund. The mutual fund manager(s) buy and sell individual positions within the fund. When those transactions occur, it triggers capital gains.

Another place to look is the property improvements they made. How were those funded? If they sold something to fund them, it’s possible that whatever they sold was at a profit, again triggering capital gain.

Two other campers. I should have made that clearer. They have 2 seasonal renters on the property. I will have to ask them if they have mutual funds seemed like a sizable amount of gains but i am not in the mutual fund game so idk what is normal or not. It sounded like he made reference this was due to their land, again this is all 2nd hand info i was trying to piece together from what they said to me and me trying sift through dozens of papers.

 

[SAJ-99]

I am wondering if the CPA said "The base" or "the basis"?

 

[Jamen]

I am wondering if the CPA said "The base" or "the basis"?

That was what my thought went to as well. Like i said i am working with fragments of info trying to piece it together. I need to find out if they have mutual funds or not. I just found it strange they had capital gains and i couldnt trace it back to any documents. i did not see any 1099-DIV form. I am also not the brightest in the tax world but i couldnt find where that number he had was generated from.

 

[westbranch]

With an LLC taxed as a partnership there can be distributions in excess of basis. Taxable amounts depend on several factors, look at the number on Line 7 of Form 1040 pg 1 and trace it back to Schedule D and Form 8949.

 

[Jamen]

My best guess is they bought it for X amount put Y amount into it thus raising the value to XY plus land value going up in those years as well.

 

[Jamen]

With an LLC taxed as a partnership there can be distributions in excess of basis. Taxable amounts depend on several factors, look at the number on Line 7 of Form 1040 pg 1 and trace it back to Schedule D and Form 8949.

ok i will do that!

 

[westbranch]

My best guess is they bought it for X amount put Y amount into it thus raising the value to XY plus land value going up in those years as well.

Very unlikely there would not be any tax on the increase in land value. If it happened with an LLC it would have been due to a ownership change or liquidation event.

 

[antelopedundee]

My best guess is they bought it for X amount put Y amount into it thus raising the value to XY plus land value going up in those years as well.

How can they tax unrealized gains? Seems like they should have been able to deduct/subtract any cost of improvements plus interest if the money was borrowed. There has to be attached forms showing where the gains came from.

 

[ismith]

Taxation is theft.

 

[SAJ-99]

Suck it up and keep walking.

 

[David Gough]

Sounds like distributions in excess of basis to me, but that's with the limited information. Time for a new CPA if he couldn't clarify that for them.

Took a break from a large extension and found another tax question.

Back to the grind.

 

[antelopedundee]

Any update?