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No loss allowed if sold to a related party. I believe the unallowed loss is added to the new owner's basis provided she holds on to the house for a specified period of time. You can research that in your spare time since it won't affect anyone's taxes in 2021. (Spare time--what a concept!)

One more thought on this: Donor should provide detailed calculations of the basis gifted to sibling because the character of any future gain or loss on that gifted portion will be the same as if donor disposed of it. In other words, if that portion of ownership would be subject to ordinary tax rate in the hands of the donor, then the donee will not get cap gain rates on that portion either.

There may be more to this. Owner was renting to a relative so depreciation allowed or allowable may come into basis calculations. Was this considered? One has to question whether the rental was at fair value, because every day of rental to relative at less than FMV is considered personal use. If less than FMV, how much depreciation was allowed or allowable? If at FMV, then depreciation will factor into the calculations. So, was this taken into consideration to arrive at the $120,000 of basis, and is there really a loss? Has depreciation recapture been considered? I doubt this will turn into a gain because the selling expenses weren't discussed, but if there is a gain, that gain will be taxed at ordinary rates because the sale is to a related party. Regarding a loss, Sara is correct. Sec 1015(a) is where the tax code places a limitation on the gifted basis so that a loss cannot be transferred by gift from donor to donee, and no one can ever deduct that portion of a loss. If and when the recipient disposes of the property and does incur a loss using the lower basis under the dual basis rule, the loss is limited to the the amount of loss beyond the reduced (dual) basis for computing the loss. In other words, the recipient would never get the benefit of the decline in value from the original donor's cost to its lower FMV at the time of the gift, but CAN take loss beyond that once in his or her ownership.

Sara I am really impressed, I couldn't even decide what the questions were?

One more time, I am sooo glad I am not in a community property state

Agreed, a discount wouldn't automatically throw this into personal use, but it does have to be reasonable and justifiable.

A reasonable discount for a good tenant is allowable because you know they'll take better care of it than many other tenants. I'm comfortable with a 25-30% discount for relatives not violating the FMV rule.

Maybe the W-2 he brought was from his sibling and when his sibling paper filed, the IRS knew only one is legit. I always insist for my new clients to show me their SS card, not only for situations like this, but also because I need to match my filing with what is listed on the SS card.

I too made the switch to Drake after the 2012 debacle. Tried several other programs trying to save money. You get what you pay for. I just renewed Drake for next year. I use the Drake Accounting package as well and you just can't beat the price. Everything for $1345.00. If you purchase before May 31. Yes, it has a learning curve. Each year I learn more and become even more satisfied I made the switch. I agree with Max. Download a previous version of Drake for a test drive. I just learned yesterday that when completing a Sch C, Drake has a search function for finding the NAICS business code that is by far easier than scrolling through the codes looking for the one that is a match.

FDNY, your humor is so appreciated! Fortunately I have suffered very little in all the years (since 1997), I have used ATX. Luck? Good computer? Few problem clients? Stars in alignment? No idea but, for me, it ain't broke so I'm not fixing it and meets my needs. I like how it works and, for me, the price is right. I did begin with CCH Pro something back in the mid-eighties when I first worked at a firm but that was filling out the sheets, sending away for coding and, well, ancient technology. Now this program is like my comfy, broken in slippers.

I agree with Yardley. I gave Drake a try twice as I did ProSeries and did like the newness like I had a new toy to play with. But in the end I just feel comfortable with ATX, and for all it's problems and complaints we can all be like martyrs in the tax preparation world. There's so much to be upset about, but it brings us closer together as we don't have to suffer in silence or isolation.

I have downloaded the Drake evaluation program and I agree with this comment that the forms option is not close to what ATX offers. And maybe it isn't meant to be, it's not a form based program essentially. With that said, I'm not a Drake user and I'm sure those who are love the product as evidenced by comments in this ATX forum. I prefer ATX.

The times I did try the Drake forms option, it seemed to me to be a pale imitation.

IRS yesterday confirms that MFJ taxpayers in Community Property States are to split the UI equally between them and then apply the exclusion to each spouse, even if only one had UI. Big break for taxpayers in Community Property States. Tom Modesto, CA

I don't have step by step solution but this is what I did with one return. make a copy of the return that you sent to the IRS. Go back to the original one and add the expenses and efile NY. Go back to the newly created copy, select amend return. This will create a copy again of the return. Go to the copy of this return and open 1040, add the expenses, then go to 1040X, make sure the changes are correct, add the explanation and create the efile for Federal. Transmit the efile to Federal only. Make sure your client has copy of the original filed 1040, the NY filed return and the 1040X return. I am not sure how NY or the IRS operates but most likely the IRS will send a note to NY and say... "this guy amended in 2020". NY might wonder in a couple of years why you didn't amend NY.

She is one week old today!

I also switched to Drake in the 2012-season debacle. Yes, there was a learning curve (in late February!). Yes, some things are different. Yes, there are annoyances (as there were with ATX, as well - no program is perfect and the ones that come significantly closer need another digit in the pricing, at least). I recommend you take a good hard look at Drake. I helped a friend, years back when I was still with ATX, to do some returns on ProSeries. I detested it so much that I never even considered using it. Couldn't find a bleeping thing, couldn't search, couldn't trace any numbers back - I spent more time on those three returns than on any nine other returns ever. And they were not complex; one straightforward S-corp with good trustworthy QB reports, one trust, and one personal.

As a proud Grandpa to 7 grand kids, welcome to the fold! It's awesome. Grandpa is the best job I've ever had.