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  1. #11
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    Oct 2006
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    Default Re: Rental Expenses and Depreciation Carry Over

    Although the OP hasn't been back (or at least hasn't reposted) I really think that what happened here is that the OP misunderstood the instructions.

    What the OP should have done was expense the 2008 expenses in 2008 even though he didn't have any rental income. If perhaps he had no taxable income at all for that year, he would still have needed to file a return to establish his loss carryforward on the rental property.

    He can either file a 2008 return now, or amend the 2008 return that he did file, to expense the 2008 expenses.

  2. #12
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    Default Re: Rental Expenses and Depreciation Carry Over

    Quote Quoting SChinFChin
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    Also, as its was mentioned, if the OP demonstates that he intends to be in the rental business, he can make deductions as an expense in 2008 also, even though he was not fortunate enough to find a tenant that soon. I had these discussions with my CPA as well in years past, for rentals I acquired too late in the year to be able to fill up with tenants.
    CPA's are not required to take even a single course in personal income tax. Very little of the CPA exam deals with personal taxation.

    The OP expressed no intention of being in "the rental business". If he is in the real estate rental business then he needs to file on Schedule C and pay self-employment tax on his earnings. What he is describing is supplemental income filed on Schedule E, and the rules for this are as I've described. I don't know what your core area of expertise is but I've demonstrated my expertise through extensive testing with the IRS. I've also taught this stuff for many years. I'm afraid I'll have to rely on my own knowledge, training, and the IRS publications over some unknown CPA. Sorry. But I try not to ask people to take my word for things, so take a look at: http://www.irs.gov/pub/irs-pdf/i1040se.pdf

  3. #13
    Join Date
    Feb 2010
    Posts
    5

    Default Re: Rental Expenses and Depreciation Carry Over

    Thank you all for your replies.

    Please read the topic "Passive Activity Limits" on page 13 of P527 if you think the expenses (losses) can not be carried forward to the next year. My undestanding is that they can be if the following conditions apply:

    1. There is a net loss from passive activities
    2. The tax filer is not in the real estate business
    3. The AGI is above a certain amount

    Typically losses from passive activities can only be deducted against income from passive activities and not from the earned income unless your AGI is less than $100k.

    In my case i had expenses and no rental income (a net loss) in 2008 . My AGI was too high to deduct losses from passive activities. So the only thing i could do was carry them forward to next year when I will have income from passive activities, i.e., renatl income.

    My only mistake may be that i didn't file anything with my 2008 return to indicate the losses that I intended to carry forward. If any one has an insight into how I should have reported the carryforward losses, please let me know.

  4. #14
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    Jul 2007
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    Florida
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    Default Re: Rental Expenses and Depreciation Carry Over

    What you needed to file was Schedule E. On Schedule E you would list your expenses. If the passive activity losses from Schedule E are eligible to be deducted that year then you must deduct them that year against your other income. This is not something you elect. If, however, your AGI exceeds the threshhold that would allow you to deduct the loss(part or all) then the unused portion of the loss can carry forward. You are not carrying forward the expenses to report them in a later year, you are calculating income/loss from the passive activity and carrying that forward.

    Most people are able to deduct up to $25,000 of their passive activity loss against other income. If the AGI is too high, however, the deductibility can be reduced or eliminated. For a married couple filing jointly this reduction begins at $100k and is completely eliminated at $150k.

    What you should do at this point is to file a 1040X amended return for 2008. Include the Schedule E information that should have been reported, including depreciation (form 4562), insurance, mortgage interest, property taxes, etc. Since there is a loss you will have to see whether you can apply that against your other income for 2008 or if you have to carry the loss forward. If you carry it forward it is entirely possible that you won't be able to use it in 2009 either if you made more than $100k and had another loss. It will help you if your rental activity was profitable for 2009. You would use form 8582 to calculate your passive activity loss limitations.

  5. #15
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    Mar 2008
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    Default Re: Rental Expenses and Depreciation Carry Over

    Quote Quoting Bubba Jimmy
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    CPA's are not required to take even a single course in personal income tax. Very little of the CPA exam deals with personal taxation.

    The OP expressed no intention of being in "the rental business". If he is in the real estate rental business then he needs to file on Schedule C and pay self-employment tax on his earnings. What he is describing is supplemental income filed on Schedule E, and the rules for this are as I've described. I don't know what your core area of expertise is but I've demonstrated my expertise through extensive testing with the IRS. I've also taught this stuff for many years. I'm afraid I'll have to rely on my own knowledge, training, and the IRS publications over some unknown CPA. Sorry. But I try not to ask people to take my word for things, so take a look at: http://www.irs.gov/pub/irs-pdf/i1040se.pdf
    Bubba Jimmy:

    I'm well aware of all this.

    I've been doing rentals, and as you would correct me, as a "Schedule E filer non RE professional' since around 1980, which would put it to close to 30 years. By the way, I have met many people at parties, and mentioned I do Real Estate on the side, they would say, "so you're in the RE biz", but never had anyone asked if it was as a "schedule E non-RE professional filer."

    And being in it all these years, I done it before they had passive activity limitation rules. I did it when they had ACRS 15 year depreciation for properties, then 18 years, 19 years, finally 27.5. And because I've taken over parts of properties owned by partners, I even have properties when one portion is 15 years, and the part for 18 years.

    And yes, I went through a number of years where our income exceeded $150K, and we had to hold deductions in suspense for a that long, till I started a business, reported income dropped and was able to use the suspended credit for a number of years.

    And yes, after my masters accounting/finance degree, I also took a "certificate of reals estate management" at a local university, where I took "accounting courses in real estate".

    And further, we also had an "enrolled IRS agent" taking the course, and I can recall arguments about doing the books according to GAAP, and the retorts "no, the IRS won't accept that".

    As to the recommendation the OP amend his tax returns, depends on if he uses a CPA, my CPA's don't do it for free. The last time I tried something as foolish, it ran me close to $400.00, not to mention the time and effort involved. The OP didn't mention how much he forgot to include, but if I forgot $3,000 in expenses, after I amended the return, got the tax returns, took care of the CPA, after all the yelling and screaming, it's not worth it.

    This is not to say I haven't forgotten to include depreciable assets over the past 30 years. As I mentioned further up, when I forgot to include a hot water tank, amending the returns would result in a $10 reduction in taxes, while spending hundreds in CPA fees. Not to say the OP can't do it.

    And even you pointed out that the OP should be using a CPA on this.

    Reading your posts, I don't get the impression you're a CPA, but "an enrolled IRS agent". The one lesson I got from the "Real Estate Accounting course" is CPA's, and the IRS agents come from different directions, and easy to administer rules for the IRS does not always make good accounting sense.

    I'm not saying you got the wrong answers and I got the right ones, but my comments is "from the school of hard knocks".

  6. #16
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    Default Re: Rental Expenses and Depreciation Carry Over

    Quote Quoting SChinFChin
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    Bubba Jimmy:

    I'm well aware of all this.

    I've been doing rentals, and as you would correct me, as a "Schedule E filer non RE professional' since around 1980, which would put it to close to 30 years. By the way, I have met many people at parties, and mentioned I do Real Estate on the side, they would say, "so you're in the RE biz", but never had anyone asked if it was as a "schedule E non-RE professional filer."

    And being in it all these years, I done it before they had passive activity limitation rules. I did it when they had ACRS 15 year depreciation for properties, then 18 years, 19 years, finally 27.5. And because I've taken over parts of properties owned by partners, I even have properties when one portion is 15 years, and the part for 18 years.

    And yes, I went through a number of years where our income exceeded $150K, and we had to hold deductions in suspense for a that long, till I started a business, reported income dropped and was able to use the suspended credit for a number of years.

    And yes, after my masters accounting/finance degree, I also took a "certificate of reals estate management" at a local university, where I took "accounting courses in real estate".

    And further, we also had an "enrolled IRS agent" taking the course, and I can recall arguments about doing the books according to GAAP, and the retorts "no, the IRS won't accept that".

    As to the recommendation the OP amend his tax returns, depends on if he uses a CPA, my CPA's don't do it for free. The last time I tried something as foolish, it ran me close to $400.00, not to mention the time and effort involved. The OP didn't mention how much he forgot to include, but if I forgot $3,000 in expenses, after I amended the return, got the tax returns, took care of the CPA, after all the yelling and screaming, it's not worth it.

    This is not to say I haven't forgotten to include depreciable assets over the past 30 years. As I mentioned further up, when I forgot to include a hot water tank, amending the returns would result in a $10 reduction in taxes, while spending hundreds in CPA fees. Not to say the OP can't do it.

    And even you pointed out that the OP should be using a CPA on this.

    Reading your posts, I don't get the impression you're a CPA, but "an enrolled IRS agent". The one lesson I got from the "Real Estate Accounting course" is CPA's, and the IRS agents come from different directions, and easy to administer rules for the IRS does not always make good accounting sense.

    I'm not saying you got the wrong answers and I got the right ones, but my comments is "from the school of hard knocks".
    Just as an FYI many reputable tax professionals do amended returns for far less than the kind of money you are talking about.

    Our firm does them for our clients for $55.00 and for non clients for less than $100.00 in almost all cases. I know lots of other firms who do them just as inexpensively.

    Yes, if you go to a high priced CPA, you can expect to pay a high price for your amended return.

  7. #17
    Join Date
    Mar 2008
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    Default Re: Rental Expenses and Depreciation Carry Over

    Quote Quoting llworking
    View Post
    Just as an FYI many reputable tax professionals do amended returns for far less than the kind of money you are talking about.

    Our firm does them for our clients for $55.00 and for non clients for less than $100.00 in almost all cases. I know lots of other firms who do them just as inexpensively.

    Yes, if you go to a high priced CPA, you can expect to pay a high price for your amended return.

    Thanks. I thought the price was ridiculous too, but on second thought, I figure he didn't really want to do it, which the high price tends to indicate.

    He later fired me, told me I'm not a suitable client for him, but that's another long story, and I since found another CPA.

    However, years before this, I got into another big fight with another CPA about amending returns, which is why it's something I tend to avoid.

  8. #18
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    Default Re: Rental Expenses and Depreciation Carry Over

    Quote Quoting SChinFChin
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    Bubba Jimmy:

    Reading your posts, I don't get the impression you're a CPA, but "an enrolled IRS agent". The one lesson I got from the "Real Estate Accounting course" is CPA's, and the IRS agents come from different directions, and easy to administer rules for the IRS does not always make good accounting sense.
    I'm not here to bust anyone's chops, but when I see information given to someone that conflicts with what the tax code specifies then I say so. I would caution anyone from getting to comfortable with the letters after anyone's name. There are incompetent EAs, CPAs and lawyers. Be wary of anyone who insists "I know what I'm talking about, I've done this for a thousand years" but cannot show you in the IRS publications or the tax code what they are trying to sell you on believing. I post references for things that involve any complexity at all.

    All accountants, CPAs, attornies, and tax professionals charge for their services. So does your local Jiffy Lube. You always have the option of gaining the expertise yourself and doing the work yourself. I decided to remodel my own home, for example. Now, folks here can advise others any way they like. It's a public forum. I personally don't advise people on what I think they can get away with. That's a loser's proposition because at some point I'd be responsible for harming someone, perhaps seriously. It is better to do things right, even if you have to pay someone. There are some things that are worth paying someone else for what they know. And, a CPA who advises clients to do something different than what the tax code requires will lose his license just as quickly as and enrolled agent. Perhaps you have an opinion about the ethics of CPAs that differs from mine, but in my experience there is no difference in how the tax code operates in a CPA's office.

    To do a Schedule E with depreciation and a 1040X I would charge someone $125 if I hadn't done their original return. If I did their original return and new information showed up I'd probably not charge them at all.

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