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Posted by Ted on November 27, 2006, 8:08 am
Please log in for more thread options > Ted wrote:
>>> Ted wrote:
>>>>> Ted wrote:
>>>>>> I owned stock in a small company that is no longer. When I
>>>>>> invested, NYS was kind enough to give a 20% tax credit.
>>>>>>
>>>>>> Is my basis what I invested, or 80% of what I invested?
>>>>>> If I recall correctly, the tax credit was treated as income
>>>>>> for the Federal Tax return, so I don't see why it should
>>>>>> reduce my loss now; but you never know...
>>>>> I'm assuming this was the credit for capital contributions
>>>>> to emerging technology companies (NYTL Sec. 606(r)).
>>>>>
>>>>> The credit provision doesn't require you to reduce your
>>>>> basis in the stock, but it does recapture the credit to the
>>>>> extent you held the stock less than 108 months (9 years)
>>>>> after the close of the tax year in which you acquired the
>>>>> stock. The recapture is proportionate to the time the stock
>>>>> was held.
>>>>>
>>>>> In general, state tax credits are not taxable income for
>>>>> federal income tax purposes. While the basis of property
>>>>> that is eligible for certain federal credits is reduced by
>>>>> the amount of the credit, those reductions are not effective
>>>>> for state income tax purposes. Similarly, tax credits
>>>>> allowed by states may reduce the basis of the property for
>>>>> state income tax purposes, but do not affect the federal
>>>>> basis. I don't know why the credit would have been included
>>>>> in your federal taxable income in the year you purchased the
>>>>> stock, but whether it was or not, I don't believe it has any
>>>>> effect on your basis in the stock for federal purposes.
>>>> That is correct, a QETC.
>>>> So you are telling me it reduces the basis for my NYS
>>>> return, but not for my Federal return; right?
>>>>
>>>> The company only lasted 6 years. Do I lose part of the
>>>> credit? Doesn't seem fair, since I never sold it; but the
>>>> law isn't always fair.
>>>>
>>>> I will have to look up my old tax return, maybe my
>>>> recollection is wrong.
>>> No, it isn't a basis reduction for NYS purposes; it's a
>>> partial recapture of the credit. In other words, you'd
>>> calculate the Schedule D loss the same as federal, but you'd
>>> have an ordinary income addition in the amount of the
>>> recaptured credit.
>> I understand; but suppose I invested $100,000 and got a
>> $20,000 credit. My federal basis is $100,000; but is my
>> state basis $100k or $80k?
>>> However, if you still own the stock, and are just writing it
>>> off because it has become worthless, I'm not sure the credit
>>> recapture applies. I'd have to look into that a little
>>> farther.
>> yes, I still own the stock. The text on the NY is
>> ambiguous, at least to me!
> See NY TSB-M-00(2)(I), 9/27/2000
>
> There is no basis adjustment for the credit. Your state
> basis in the stock is $100,000.
>
> If you sold, transferred, or otherwise disposed of the stock
> more than 48 months (4 years) but not more than 72 months (6
> years) after the close of the year when the credit was
> allowed, you would be required to add to your tax liability
> for the year of disposition 60% of the credit, or $12,000.
> If the disposition occurred more than 72 months but not more
> than 96 months after the close of the year when the credit
> was allowed, you would be required to add to your tax
> liability for the year of disposition 40% of the credit, or
> $8,000.
>
> Since you did not sell, transfer or otherwise dispose of
> your stock, I can find nothing in the law or in the TSB that
> requires the recapture of any part of the credit.
>
> Katie in San Diego
Thanks much
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