In 1999 I invested $50,000 in a startup. The state gave a tax credit of 20% on the investment, requiring that I leave it for 10 years. I effectively paid federal tax on the credit, since it decreased my state tax. I just sold it for $100. Yeah, not the world's best investment, but it came really close to paying off.
What is my basis? $80,000 or $100,000? Is it the same for Federal and State?
it for 10 years.
really close to paying off.
A little hiccup there. Investment was $100,000. I hope it makes more sense now.
it for 10 years.
really close to paying off.
For federal, your basis in $100,000. A state of the union is free to establish its own criteria for incentives. The state could have created an investment tax credit that has no basis adjustment or they could have created a credit that required an adjustment to basis. E.g., here's one from Arkansas that requires an adjustment to basis.
VIII. Sale or Disposition of Equity Interest For the purpose of ascertaining the gain or loss from the sale or other disposition of an equity interest in a business, the owner of the equity interest shall reduce his or her basis in the equity interest by the amount of the tax credits claimed under these rules and regulations. However, sale or other disposition does not include a transfer from the holder of an equity interest to the business in liquidation of the equity interest. This reduced basis shall be used by the original purchaser or transferee when calculating tax due under the Income Tax Act of 1929, § 26-51-101 et seq.
You will have to check the statute back in 1999 to determine what the rules were at the time the credit was granted.
it for 10 years.
really close to paying off.
Thanks, Federal is 75% of it. I don't suppose anyone know what the statute was in 1999 in NY?
What would you think a local accountant would charge to dig into it? I am afraid it would just be cheaper to pay the extra $1,000 in state tax.
it for 10 years.
really close to paying off.
afraid it would just be cheaper to pay the extra $1,000 in state tax.
It is highly likely that you are asking about the Qualified Emerging Technology Company (QETC) Capital Tax Credit that started in 1999 and still exists today. It's the only 20% credit I'm aware of. See below for a description assuming you have a QETC. ===================================================================20% of qualified investments, provided the taxpayer certifies that the qualified investment will not be sold, transferred, traded, or disposed of during the nine years following the year in which the credit is first claimed (maximum credit of $300,000 per taxpayer). ===================================================================If no one on this board can answer the query, try calling the state tax department and asking them whether cost basis had to be adjusted.
Some tax preparation chains advertise that they will review your return for free to determine if you are entitled to a refund. If they can get you a refund that's higher than what they will charge to amend your return, it might be worth it.
___ Stu
I did that once at H&R Block. Guy looks at it and says "this was done on a computer!" "Yeah, so what?" He told me, "all we look for is math errors and there won't be any, so checking it is a waste of time".
This was 6 years ago, but I suspect it is the same now. The odds of someone at TaxPrep shop knowing what to do with a QETC credit is slim.
leave it for 10 years.
came really close to paying off.
afraid it would just be cheaper to pay the extra $1,000 in state tax.
That is correct, a QETC. I called the NYS tax department. She didn't have any idea what was I was asking, and transferred my call. The new person didn't have any idea what I was asking and spoke to a supervisor. She told me I had to ask the IRS; NYS does whatever the IRS does. When I tried to tie it down to the credit in particular, she got rather rude; just repeating that they did exactly the same as the IRS. So, if you guys tell me the IRS doesn't consider the credit, is it safe to rely on what I was told when I called to find out?
Just like with the IRS, it is never safe to rely on what they tell you orally. It typically isn't safe to rely on what they tell you in writing.
Seth
asking, and transferred my call. The new person didn't have any idea what I was asking and spoke to a supervisor. She told me I had to ask the IRS; NYS does whatever the IRS does. When I tried to tie it down to the credit in particular, she got rather rude; just repeating that they did exactly the same as the IRS.
rely on what I was told when I called to find out?
I can't tell you what to do. I can only tell you that the credit is in Article 9A, Section 210.12-F of the Laws of the State of New York. No where in that whole section does it mention a requirement to adjust basis.
asking, and transferred my call. The new person didn't have any idea what I was asking and spoke to a supervisor. She told me I had to ask the IRS; NYS does whatever the IRS does. When I tried to tie it down to the credit in particular, she got rather rude; just repeating that they did exactly the same as the IRS.
rely on what I was told when I called to find out?
Thank you so much. That ought to be be right. The worst that can happen is that they dispute $1,000, but they cannot argue I didn't act in good faith. Unless someone looks at it that is more competent than the people I got on the phone, they will neither notice nor know.
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