Special Report on Investments and Personal Finance : Taxpayer Must Show Value of Gift
Q: Last year I gave 51 shares of stock to a charitable organization. On the actual date of the gift, the shares opened and closed at $19.50 each. I added a personal check for $5.50 to make the gift a total of an even $1,000. The organization refused to give us credit for the $1,000 gift, instead offering a letter acknowledging receipt of the 51 shares and the $5.50 in cash. We think this is wrong and want a receipt for the $1,000. -- R.T .
A: Our sources say the charity handled your donation appropriately, acknowledging separately your cash and non-cash gifts. Recipients are not required to value the gifts they receive, only to acknowledge them accurately (and one would hope with heartfelt appreciation).
Now it is up to you to show the Internal Revenue Service the value of your donation. List your cash donation on Line 15 of Schedule A. The stock, with a value of $19.50 per share, should be listed on Line 16 of Schedule A.
Business Accounts and Bank Failures
Q: When a bank is taken over by federal regulators, does the same $100,000 limit on deposit insurance apply? I am specifically concerned about business checking accounts that pass through large sums every day. What happens if we deposit $300,000 one day, mail out checks that same day for $250,000 and the bank is seized the following day before the checks have a chance to clear?-- J.R.B .
A: The $100,000 Federal Deposit Insurance Corp. limit on single accounts and account categories applies to businesses as well as individual bank clients. This means that $200,000 in your business checking account could be lost in the event your bank were seized by the FDIC.
That said, you should know that the FDIC says the problem appears far worse on paper than it is in reality. Why? Because virtually all business checking accounts--and certainly those of the size you describe--are constantly in motion as funds are deposited and withdrawn. According to the FDIC, this fluidity should mean that your account may not have the exact amount of money you think at the close of business on any given day. In addition, most businesses of your size tend to use aggressive cash management techniques to insure that checks and deposits are moving through the account in such a manner and pace as to insure that the account always has enough--but not too much--money. These techniques include multiple checking accounts for different portions of your business as well as direct-wire payments of large bills and staggered check disbursements to employees and vendors.
Furthermore, you must realize that only the actual amount of money in your account at the close of business on the day the bank is seized is subject to the insurance limits. Any deposits reaching your account after the seizure are considered “new money” are not aggregated into the old account. Instead, they are put into a separate account. Outstanding checks clearing after the seizure can be drawn against funds in this new account and up to $100,000 in the original account.
Still, anything over $100,000 in your account at the close of business on the day your bank is taken over is subject to seizure, and you have little recourse against checks being returned for insufficient funds. You can keep your outstanding checks from bouncing--thereby preventing your business from interruption--by opening a new account. You may also make a claim against the receivership for a portion of the funds generated by the sale of the assets from the insolvent bank. The latter step almost never results in payment of much more than 50 cents on the dollar, and even that reimbursement amount is rare. Clearly, the message is to keep a close eye on the balance in your checking account and the solvency of the institution at which you bank.
For more information about FDIC insurance, write for the free booklet, “Your Insured Deposit,” to Federal Deposit Insurance Corp., 25 Ecker St., Suite 2300, San Francisco, CA 94105.
No ‘Net Operating Loss’ Deduction Here
Q: Please let me know before April 17 if I can use the “net operating loss” deduction on my personal residence. Does the property have to be a rental? G.M .
A: There is no such thing as a “net operating loss” on personal property. By definition, this deduction is limited to real estate used in trade or business activities.
If the real estate in question was used in a trade or business and you suffered a loss upon its sale, you could claim that as an ordinary loss when filing your taxes.
If the real estate in question was held as an investment and you suffered a loss upon sale, you could claim that as a capital loss and deduct it against any capital gain you had during the tax year and up to $3,000 of ordinary income. Any excess could be held over and deducted in subsequent years.
If the real estate in question was your personal residence and you suffered a loss upon its sale, that loss is not deductible at all at this time.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053
More on Earthquake Insurance
* Times on Demand has prepared a compilation from the Money Talk column of the most-asked questions and answers on how taxpayers should treat casualty losses, insurance payments and FEMA grants on their 1994 tax return. To order, call 808-8463, press *8630 and select option 1. Order Item No. 2823. $4, plus 50 cents delivery. To order by mail, send a check to Times on Demand Publications, P.O. Box 60395, Los Angeles, CA. 90060.
