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Summer 2022 - 6 (Converting Your Home into a Rental Property continued from page 5)
1031 “Like-Kind Exchange” can be a powerful tool to defer tax if you no longer want to own this rental property (and you flunk the “2 out of 5” year rule) but are still willing to own an investment property. This would delay any taxes until the replacement property is ultimately sold. Section 1031 exchanges are a complicated process and you should consult with your tax professional before you choose this route.
3.Once you have two homes, you then could sell your personal home instead of the rental property. If cash flow is what you need and your situation is right, selling your personal residence instead of the rental property could allow you to exclude all of the gain and provide you with the funds you need. Remember you need to meet the requirements to exclude the gain on sale of your personal residence for this to work.
A Publication of Ketel Thorstenson, LLP
4.You could continue to rent out the property until you pass away, at which point the inheritor of the rental property would get the basis stepped up to fair market value. As always, each situation is unique and you should speak with your tax professional prior to converting your personal residence into a rental property.
EMPLOYEE VS. INDEPENDENT CONTRACTOR – WHO’S WHO? Hannah Sheffield, CPA, Senior Associate, Tax Department independent contractor. The IRS has compiled a “20 Factor Test” to help determine whether a worker is an employee or an independent contractor. The most important factors are in bold.
Hannah Sheffield, CPA, Senior Associate, Tax Department
How do I determine whether a worker is an employee or an independent contractor? The easiest way to answer this question is, do I have control over that individual? If the answer is yes, then they should most likely be considered an employee. If the answer is no, then they should most likely be considered an
1. Instructions to worker If the employer has the right to control and direct the worker regarding the detail and means by which a task is achieved, the worker is generally considered an employee. 2. Training 3. Integration into business operations 4. Requirement that services be rendered personally 5. Hiring, supervising, and paying assistants 6. Continuity of the relationship (permanency) 7. Setting the hours of work
8. Requirement of full-time work 9. Working on employer premises 10. Setting the order or sequence of work 11. Requiring oral or written reports 12. Paying worker by the hour, week, or month 13. Payment of worker’s business and/or travel expenses 14. Furnishing worker’s tools and materials If the business furnishes sufficient tools, materials, and other equipment to complete tasks, then it’s generally considered an employeeemployer relationship. 15. Significant investment by worker 16. Realization of profit or loss by worker
(Employee VS. Independent Contractor - Who’s Who? continued on page 7)
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