Vacation home tax tips by mge41071


									                                                     News of Polonia Pasadena, California July 2007                                                                             Page 3
                   Your Taxes                             Music News                                              Investments                                        Legal
                   and Financial                By: Marek Żebrowski and Krysta Close                              By: Joanna Brost                                   By: Christopher
                   Matters                                                                                        Financial Advisor                                  Kerosky, Esq.
                   By: Richard P. Król          Polish musical heritage                                           (800) 473-1331 X 259
1 800 cpa-krol          When thinking of the history of Polish                
                                                music and the most prominent composers,
                                                the name of Frederic Chopin inevitably
                                                                                                The Home in Your                                 P Visas
Vacation home tax tips                          comes to mind. Even during his life, he was                                                      By: Christopher A. Kerosky
  Planning to rent out your vacation home?      the standard-bearer of Polish music. His        Portfolio                                          The P visa category is a special category
When it comes to taking advantage of the        nineteenth century colleagues are
                                                remembered less well, and perhaps not
                                                                                                Secure a mortgage without                        of visas for individual or groups of athletes
tax benefits, timing is an important factor.                                                                                                     and performers. While the P category does
                                                mentioned in the same breath. Encouraged        disrupting investment strategies.                not lead to permanent residence, it is useful
Here are two points to remember:
                                                to reflect on Polish music of the romantic        Instead of borrowing from banks or hastily     for certain performers. This article will give
The fourteen-day-or-ten-percent test.
                                                era, we certainly remember Moniuszko and        liquidating investments, affluent home           a general introduction to P visas. You
  The Internal Revenue Service applies this
                                                Wieniawski, and maybe even a few other          buyers are discovering the merits of pledged     should see a qualified immigration attorney
test to determine if you use your vacation
                                                names, like Zarębski, Karłowicz,                -asset mortgages. These mortgages finance        before proceeding with an P visa or any
home as a personal residence. If you stay in
                                                Noskowski, and Żeleński, for example.           the entire purchase price of one or more         other type of application with Citizenship
the home more than 14 days or 10% of the
                                                Moving on to the first part of the twentieth    residences by setting aside marketable           and Immigration Services (“CIS”).
total days it’s rented in a calendar year
                                                century, we immediately think of                securities as loan collateral. They are
(whichever is greater), the general rule is                                                                                                      What is the P visa?
                                                Szymanowski and, following in his               becoming a popular option, especially for
you are using it as your home.                                                                                                                     The P visa allows international athletes
                                                footsteps, Lutosławski, Penderecki and          high-net-worth clients who want their
Why does it matter? Treating a vacation                                                                                                          and entertainment groups to come to the
                                                Górecki, undoubtedly the greatest               investment portfolios to remain intact.
home as your personal residence affects                                                                                                          U.S. and perform. It allows accompanying
                                                composers of the modern era.                      Pledged-asset mortgages ideally suit
your rental deductions. You would include                                                                                                        support personnel to enter the U.S., as well.
                                                  Going back to more ancient times, some        buyers who expect the after-tax rate of
all the rent you receive as income on your                                                                                                       Dependents of aliens in this category may
                                                of us may know that Polish music of the         return on their investments to exceed the
tax return. However, related expenses are                                                                                                        also come to the U.S.
                                                Renaissance and Baroque eras had a rich         after-tax interest rate on a mortgage.
generally limited to the amount of that                                                                                                          How does the P visa differ from an O
                                                tradition and considerable repertoire of        Moreover, because earned income tax rates
income, meaning you cannot offset other                                                                                                          visa?
                                                compositions penned by such masters as          adjust mortgage costs while lower capital-
income with a loss.                                                                                                                                P visas are better suited to group artists
                                                Wincenty from Kielce (ca. 1200 – ca. 1261),     gains rates adjust investment returns,
Note: Time spent in your vacation home by                                                                                                        coming to the United States for shorter
                                                Tomasz from Sandomierz (d. 1259),               investors may enjoy a built-in tax advantage
family members and certain others can                                                                                                            periods of time. Also, for many athletes, P
                                                Mikołaj from Radom (active in the first half    even if returns simply match the cost of the
count as personal use.
                                                of the 15th century), Wacław from               mortgage. Using a pledged-asset mortgage         visas are easier to obtain. The P-3 category
The less-than-fifteen exception.                Szamotuły (ca. 1520 – ca. 1560), Tomasz         to avoid an ill-timed sale of securities (at     is the first option for culturally unique
  Rent out your vacation home for less than     Szadek (ca. 1550 – ca. 1611), Bartłomiej        year end, say) can lower a tax bill and          artists.
15 days during the taxable year, and the        Pękiel (d. 1670), Wojciech Długoraj (1558-      sustain long-term objectives. By pledging        What is the P-1 category?
income is yours, tax-free. You do not even      1619), Mikołaj Zieleński (ca. 1550 – ca.        the substantial amount of collateral required       These visas are granted to allow entry for
have to report it on your return. Just be       1615), Tomasz Szadek (ca. 1550 – ca.            for these types of mortgages, borrowers also     performance at specific athletic
aware that any expenses related to the rental   1611), Adam Jarzębski (ca. 1590 – ca.           may secure advantageous interest rates and       competitions, individually or as part of a
are nondeductible.                              1649), and Marcin Mielczewski (d. 1651).        avoid hefty fees for private mortgage            group or team, at an international level. CIS
Note: If you itemize, you can still deduct        Such a list proves beyond any doubt that      insurance, the penalty imposed on buyers         has resisted granting P-1 status to allow
qualified mortgage interest and real estate     Polish music has a rich and varied tradition,   who make down payments of less than 20           individuals to join U.S.-based groups. It also
taxes on your vacation home.                    first centered in the ancient royal seat in     percent. These types of mortgages can be         allows a foreign national who will perform
  Other tax rules, such as passive activity     Kraków, later expanding to Warsaw.              especially useful for parents seeking to help    with, or as an integral and essential part of
and capital gains reporting, can also impact    Throughout many centuries, there has been       adult children purchase their first homes.       the performance of an international group.
the decision to rent out your vacation home.    a continuum of names great and small                                                             The group may be as small as two
                                                                                                The Basics
Is it a business or a hobby?                    emanating out of Poland, some of them                                                            performers, or may include a star performer
                                                                                                  Here’s how the loans work. Instead of
  For federal tax purposes, the                 recognized internationally, others known        making a traditional cash down payment, an       and backup performers.
determination of “business” or “hobby” is a     only to local connoisseurs and historians.      investor sets aside a portfolio that typically      The group must show that at least 75% of
matter of deduction. If your new venture is     Over the past twenty years, the Polish Music    amounts to around 39 percent of the              the group’s members have been established
considered a business, you can deduct losses    Center at USC has been trying to preserve       purchase price of the home. Thus, for a          and performing together regularly for a
against other income.                           and highlight the accomplishments of not        home priced at $1 million, the investor          period of a least one year. It must also
  However, when the activity is classified as   only the greatest and best-known Polish         would earmark a portfolio of stocks, bonds       provide a statement from the petitioner
a hobby, the “hobby loss” rules limit the       musicians, but also the lesser-known ones,                                                       listing each member of the group and the
                                                                                                and CDs worth at least $390,000 in an
amount you can write off. Expenses you          for it is often a quirk of fate or some                                                          exact date for which each member has been
                                                                                                account maintained by the lender. The
incur might be deductible only if you           historical misfortune that prevented the                                                         employed on a regular basis by the group.
                                                                                                investor is free to buy and sell securities
itemize or, they might even be                  latter from claiming their rightful place in                                                     In addition, the group must provide
                                                                                                within the account, as long as they maintain
nondeductible.                                  the spotlight.                                                                                   evidence that the group has been
                                                                                                a certain level of assets. The large value of
The distinction affects the amount of tax         To this end, the Polish Music Center                                                           internationally recognized in the discipline
                                                                                                the collateral compared to traditional down
you owe. So how can you prove you are           publishes the “Polish Music History Series”                                                      for a sustained and substantial period of
                                                                                                payments protects the lender against default,
trying to run a money-making business           - a sequence of volumes that covers the life                                                     time.
                                                                                                especially in the early years of the loan
despite several years of losses?                and works of not only Chopin,
                                                                                                when the buyer has amassed little equity.        What is the P-2 category?
  One test you are probably familiar with is    Szymanowski, and Bacewicz, but also of
                                                                                                  If the value of the portfolio rises, the         This classification is for a foreign national
the general rule of earning a profit in three   such captivating musicians as Józef Koffler,
                                                                                                investor can take out any amount above the       who will perform as an artist or entertainer,
of the past five years. If your business has    Maria Szymanowska, and Zygmunt
                                                                                                initial collateral percentage required. Once     individually or as part of a group, or
more income than deductions in three of         Stojowski.
                                                                                                the home owner has amassed equity equal to       perform as an integral part of the
five consecutive taxable years, the Internal      Józef Koffler (1896-1944) was a
                                                                                                between 30 percent and 40 percent of the         performance of such a group, and who seeks
Revenue Service generally accepts that you      fascinating composer with close ties to the
                                                                                                house’s value, the portfolio is no longer        to perform under a “reciprocal exchange
have a profit motive. (The time frame is two    Viennese avant-garde movement. His music
                                                                                                needed as collateral and the owner can do        program.” These programs involve
years in seven for certain horse-related        was widely performed throughout Europe in
                                                                                                anything he or she wants with it, including      organizations in the United States and
activities.)                                    the 1930s, and for many years he was a
                                                                                                move it elsewhere.                               overseas that provide for the temporary
                                                professor of composition at the Lwów
Unable to meet that test?                                                                       Some Caveats                                     exchange of entertainers, groups, and
                                                Music Conservatory. His promising career
  Additional factors play a role as well. For                                                     Pledged-asset mortgages do come with           individual artists.
                                                was cut short as he and his entire family
instance, the Tax Court agreed that a                                                           some special conditions that investors need      What is the P-3 category?
                                                perished in the Holocaust. Józef Koffler:
volleyball consulting service with multiple                                                     to keep in mind. First of all, the person          This category is for an artist or entertainer
                                                Compositional Style and Source Documents
loss years qualified as a business, in part                                                     making the mortgage payments is borrowing        who is coming either individually or as part
                                                by Maciej Gołąb is volume eight of our
because of a businesslike manner of                                                             100 percent of the value of the house, not 80    of a group to perform, teach, or coach in a
                                                Polish Music History book series.
operation. Among other items, the Court                                                         percent as is often the case, and so can         program that is culturally unique. Examples
                                                  Maria Szymanowska (1872-1831) was a
mentioned the maintenance of a separate                                                         expect a higher monthly payment. There is        would include commercial programs such as
                                                pioneering female composer and a touring
bank account and accurate records as                                                            also what’s known as a suitability               singers from Mexico or India performing in
                                                virtuoso. A friend of Mickiewicz, Pushkin,
support for a profit motive.                                                                    requirement, which means that a financial        their language.
                                                and Goethe, she was a bright star in the
  Positive indicators of your profit-making                                                     advisor needs to confirm that this alternative
                                                salons of Warsaw, Paris, London, and St.                                                         Who is considered essential support
intentions also include your expertise in the                                                   method of financing makes sense for a client
                                                Petersburg. Szymanowska’s brilliant piano                                                        personnel?
activity, the time and effort you put into                                                      in accordance with securities industry
                                                playing was admired throughout Europe and                                                          Personnel coming to the U.S. with the
your new business, and your success in                                                          guidelines. These guidelines require that the
                                                her compositions, including Mazurkas,                                                            principal artist or athlete may also receive P
other ventures.
                                                Polonaises, and Etudes, were an important                         Investments to page 16         visas. You must show that the support
  If you have additional questions about the
                                                influence on the young Chopin. Maria                                                             personnel cannot be found in the United
ideas mentioned here and/or the many other
                                                Szymanowska -Pianist and Composer by                                                             States and that all support staff are
strategies available to you, they may be
                                                Sławomir Dobrzański is the ninth volume in                                                       “essential” to the performance. Typically, a
directed to me at 800-CPA-KROL (272-
5765), or you may write to:
                                                our book series.
                                                  Our latest publication - volume ten in the
                                                                                                    Distribution of the                          “consultation” from a union is required to
                                                                                                                                                 show why U.S. union members could not
News of Polonia                                 Polish Music History Series - is coming out          News of Polonia                             perform the job.
Your tax and Financial Matters                  later this summer. Zygmunt Stojowski: Life
2245 E. Colorado Blvd. 104/177                  and Music by Joseph A. Herter is the first       in the San Diego area is                        How long can I stay on a P visa?
Pasadena, CA 91107                                                                                                                                 CIS may grant an initial P-1 petitions for
                                                comprehensive biography of this long-             through the generosity                         individual athletes for up to five years. P-
E-mail: ❒              neglected and undeservedly forgotten
                                                virtuoso pianist and composer. Stojowski                    of                                   1s for athletic teams or entertainment groups
                                                                                                                                                 may be valid for the time needed to
                                                was born in Poland in 1870 and studied at
                 __________                     the Conservatoire Nationale in Paris. By               Joanna Brost                              complete the competition, event, or
                                                                                                                                                 performance, not more than one year. This
                                                1891 he became a student of Paderewski,
                                                                                                        Financial Advisor                                                  Legal to page 16
                                                                 Music News to page 16

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