Table 1 . Example: Jane Carter used one room (10%) of her personal residence as a home office. She 

 purchased the house in 1993 for $120,000 and sold it in June 1997 for $200,000. She lived in the 

 house during the four years and took $3,000 depreciation on the business part. Jane has two 

 transactions. 



Personal residence portion 



Business portion 



Amount of sale 



(90% of $200,000) 



Cost basis (90% of $ 1 20,000) 



Amount of sale 

 $ 1 80,000 ( 1 0% of $200,000) 



$20,000 



Realized and excluded gain 



received at least $5,000 in compensation from 

 the employer last year and is reasonably 

 expected to make at least that amount next 

 year. For 1997, the amount of the employee's 

 salary reductions cannot exceed $6,000, 

 however it is not subject to percentage 

 limitations. Therefore, an employed person 

 who has a part-time self-employment activity 

 that earns $6,000 could deposit the entire 

 $6,000 in a SIMPLE plan. Employers are also 

 required to make contributions to the SIMPLE 

 plan on behalf of eligible employees, an equal 



match up to 3% of pay of each contributing 

 employee or a flat 2% of pay of all employees, 

 whether they contribute or not. Contributions 

 to a SIMPLE plan are not subject to income tax 

 until they are distributed. The IRS has 

 provided forms (Form 5303-SIMPLE for use 

 with a designated financial institution and 

 Form 5304-SIMPLE for use with no designated 

 financial institution). These forms are not filed 

 with the IRS but form the legal contract 

 between employer and employees for 

 implementation of the SIMPLE IRA. 



•J> Vl> •^1^ •si-* •X* 



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Fruit Notes, Volume 62 (Number .3), Summer, 1997 



11 



