Mr. Pencil

I'll withdraw the use of the word "exception" if it bothers you.

Thanks for the kindness. No words bother me (except profanity). I thought the discussion was about mileage, not O.I.H. Now I'm not even sure what the question was, but anyway it seems to have been pre-answered by reasonable research.

Isn't storage of inventory or product samples one of the exceptions to the exclusive use and separate space rules?

It's not an "exception." It is just one way to qualify for business-use-of-home deductions. It does not meet the definition of a "principal place of business," which is another way to qualify. See Pub 587.

Transportation between a business location and a home office that is not used exclusively and regularly as a principal place of business is non-deductible commute. See Pub 463. Seriously, look this stuff up!

So, are you suggesting entering it on Line 21.. and then adjusting it to cancel out the income?

No, I am in the category of preparers who prefers to follow instructions. I would not report the income, because it is not reportable. I would probably disclose the nonconforming treatment of Form 1099 to protect the client from accuracy penalty, in case he forgot some other days he also rented.

The phrase "for whatever reason" is not a "justification" for deductions,

My point exactly. If the reason is that the home office does not meet any of the fairly generous but still technical definitions of principal place of business, then the deduction can not be justified.

Principal place of business does not simply mean the place where most of the most important work is done. For a home office, it specifically means a place used exclusively and regularly for business. I can't say if that rule is good or fair, but I can say that it IS the rule. Transportation between a business location and a home office that is not used exclusively and regularly as a principal place of business is non-deductible commute.

AirBnB is supposed to be under the radar! Its FREE money!

I would put it on the return, after asking some questions of course, and either Sch E with a slice of expenses that make sense.

The 1099 is appropriate. The issuer does not know whether the rental is taxable to the recipient or not. For those who prefer to file the way the IRS expects, according to instructions, this income would not be reported. However, that would certainly generate a distressing letter, so Line 21 with an explanatory offset is a common and effective procedure. Another approach that actually follows instructions is to attach Form 8275 or other disclosure. Schedule E makes no sense, because there are no allowable deductions.

>>If I had a rented office and brought my house bills in to work on in "off" times, my rent would still be fully deductible.

That is correct, according to tax law.

>> If I sit , at my work desk, and use it to look up my home banking to make sure I did schedule that electric bill -- boom; I've just lost my "exclusive" use and the home office deduction.<<

That is also correct, according to tax law.

>>But this IS my business's sole office, and when I go to a client's site, that is solely business miles -- I'm going to their location for the purpose of doing work that cannot be done from/at my location for whatever reason.<<

That is not relevant, according to tax law. But I am amused by the justification for taking the deduction, "for whatever reason"!

Mr. Pencil,

ICongress changed the rules and the new presumption is that if you have no other place of business, then it is presumed that you have a home office.

I'm happy to see you refer to a specific rule. I would be even happier if you could identify that rule from Congress. The only thing I know of is that a court decided a home office could be a principal place of business for doing administrative work, a change from the earlier definition of most important work. But that did not change the requirement of exclusive and regular use.

Certainly IRS pubs are not genuine authority. I myself pointed that out in an earlier thread.

But that only works when there is something better, like a code section or regulation.

Just because the office is not used exclusively for business does not mean that she does not have an office. The dining room table is her office if that is where she does her paper work.

She may have an office at home, but (according to Pub 587) a home office can not be a principal place of business unless it it is used "exclusively and regularly." And (according to Pub 463) if the home is not a principal place of business, transportation between home and another work location is non-deductible commute.

Sch D 'inherited' property.

Report on Form 4797. Since the property was held for sale rather than investment, it was not a capital asset.

cut timber almost always has a 100% gain

Please cite a source for that opinion.

I will not lower my standards or risk my professional reputation by putting my name on a return that I consider questionable.

I would simply thank her for considering my services, and invite her to consult again if she has a need. And explain that I am returning her papers by mail, without charge.

No other comment has any business purpose.

The volunteer should, of course, keep good records.

Thanks for a very good review, JohnH. I appreciate the way it covers records, because substantiation of volunteer expenses is comparable to what's required for cash. In particular note that travel must be as an official adult leader, which means the adult must be registered and trained. If the client does not claim dues and uniform costs, I will not allow travel costs.

An interesting thing is that the IRS itself uses scouting uniforms as an example of deductible expenses. But the scout unit as such (at least for Boy Scouts) is not a 501(c )(3) organization, and in fact it is "owned" by the sponsoring church or other community organization rather than national BSA. I accept substantiation from the church or the local Scout council, but not from the Scoutmaster.

For donations of something valuable like land or boats, I recommend the donor give it to the sponsor, or sell the asset and donate cash directly to the local unit or council if that's who they want to benefit. If they want the troop to use the land or boat instead of having it sold off, it must go to the church or to a separately formed corporation to protect the asset from the national people. That's just reality.

Line 21, no SE. Passive income.

I agree it goes on Line 21. It reminds me of inherited book royalties. These would have been SE income for the author, but the heir is not conducting a trade or business. Therefore "passive income" is not the right description, because that refers to a business activity. For example, it could not be used to offset passive losses from a rental activity.

And if this is a former soc sec # from - let' not go there... - should he be automatically issued a soc sec # or should he now apply for one and he can wait or amend and be eligible for EIC?

You rather have to go there for EIC. See the instructions for Form 8867. Or just see Form 8867. He can't get EIC if he was a non-resident alien at any time during the year, even if later he gets his papers.

if it passes to the heirs as ordinary income they will owe regular income tax on it. Really bad news. The mother had held it as investment property.

It doesn't matter what it used to be in the now-cold hands of the decedent--clearly the estate only held it for sale. But like everything else in the mother's taxable estate, it got a new basis at fair market value. Which is presumably the same as sales price three weeks later. So although it's a reportable transaction there's no gain

In fact there are probably deductible expenses. I suppose those are for estate administration, but I don't really know. Schedule F doesn't seem right because it wasn't for profit.

Another way it might sort of look like gain is when they sell the land, basis will only be FMV at death excluding the timber value.

they've voiced to me is that this is their retirement home.

Oh sure--a long-term rental makes the best dream home for retirement! Well, I suppose you won't have to worry about it anyway. Again, pardon my cynicism, but when the time comes they will probably "want a local tax preparer." That is, one who doesn't know they rented the house for 10/12 of the time.

They plan on living in this home for the foreseeable future.

Pardon my cynicism, but it's interesting how many people with this scenario can't "foresee" more than two years. Two years out of five, that is. Better bone up on nonqualified use for Section 121.

They seem to double check me on Turbo Tax....and when the result is different, I have some explaining to do.

That sounds perfectly reasonable to me.

must they file as married (whether that be joint or separate) for federal purposes or can they file as single?

According to the Instructions for Form 1040, "For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage."

NT from here on...

On the other hand, it's starting to look like the chances of even meeting someone same-sex is unlikely. Have you seen all the new Facebook options? Wow! Trans- and cis- and andro-pan, and I don't know what-all. Check this out http://techland.time.com/2014/02/14/a-comprehensive-guide-to-facebooks-new-options-for-gender-identity/?xid=rss-topstories

should their basis be reduced by the amount of principal paid on the loans?

Are all seven partners your clients? I wouldn't expect the partnership itself to track individual basis. A reduction in partnership liabilities increases capital accounts, if that's the question.

Decrease in any partnership liability will decrease the partner's basis. The share of liability is in section K of the K-1. And of course the interest payments reduce taxable income which in a sense also reduces basis. Perhaps more important, at least for a general partner who is personally liable, paying down a recourse loan will decrease the at-risk basis.

My thinking is to pass the sale proceeds through the estate giving each heir a K-1 and let them pay any tax due which ought to be none as the lady died a matter of weeks ago.

Although the fiduciary tax rate is 35%, since there is no gain anyway you can use other reasons for deciding whether to distribute the sales proceeds. Look up the special rules for reporting timber sales. It's ordinary income or loss because the estate did not hold the timber for investment. Don't forget to reduce the basis of the remaining property by whatever you allocate to the timber.

The kids spent more time with the father so he is entitled to claim them. Thank you for the advice Pacun.

"Time" is not one of the statutory factors for determining who can claim a dependent child. Various units of time may apply, such as days or nights or months or years, and qualifiers like normal or temporary, so assumptions are not reliable. It sounds like the divorce agreement was for the children to live with the mother. Before I would believe that didn't happen, I would ask for a detailed explanation that doesn't involve the divorce decree. I confess to being overly conservative on the point--in my experience, the father is almost never right.

How do you remove Self Employment earnings from the calculation? It pops up as a positive adjustment even if active.

This is going to be hard to answer, and you sure can't assume the software is right. Do you mean something like partnership income on Line 4a?

for those fed up with snow

I'm not exactly sure what "snow" is or what it has to do with getting fed, but here's a picture of President Obama yesterday wondering why there isn't any food growing in California's central valley this winter.

it's the 501( c)(4) part I need direction on.)

According to the IRS, you can not deduct contributions to a 501(c )(4) organization, with only a few very narrow exceptions.

[cut & paste this address, then delete the space after the "c" before you search!]

www.irs.gov/Charities-%26-Non-Profits/Other-Non-Profits/Donations-to-Section-501(c )(4)-Organizations

the father is entitled to the claim the kids... ex was supposed to sign 8332.

These two statements are inconsistent.