DANRVAN

2 hours ago, Terry D EA said:

2019 return which is under examination.

2 hours ago, Terry D EA said:

The IRS has added the 1099R as additional taxable retirement income and sent the CP2000. Bad news, client got scared and ignored the letters and has recently refused delivery of a certified letter from the IRS which I am assuming is the 90 day letter. Now, I'm on board to help.

Kind of hard to tie this all together.  He received a CP2000 and then under examination (audit)?

If under audit should have received a 30 day letter before the 90 day letter.

2 hours ago, Terry D EA said:

Because the client refused to accept and sign the certified letter, are their rights to petition tax court still available or is the clock still running on the 90 days?

Should still be good if in fact a 90 day letter and clock is still ticking.

52 minutes ago, Possi said:

I would bet it won't be exclusive use, but I'll ask. He will be honest with me.

Tell him if it is mix use he will need a to keep a log of time spent on rental projects vs personal use as he would other listed property, like a car.  Then you depreciate based on percent used for the rental.  So probably not much in yearly tax savings.

Also point out no section 121 if he ever decides to sell.

Since most rental repairs are done on site, I can't imagine him doing much related to the rental in a workshop.

You still need to provide some more detail:

-cash received

-amount of loan paid off (70,000?)

-exchange expenses

You indicated $50,000 to fix up new property that came out of exchange funds.  That was not part of the exchange, so it is treated as cash received, boot.

Also the loan payoff is treated as boot. 

So at this point it looks like at least 120,000 in boot which is taxable gain.

3 minutes ago, Possi said:

would the pension be exempt along with the wages?

Yes, since she is considered a nonresident and the income is considered non-source to Oregon per ORS 136.127.

If she moves back to Oregon, it become taxable to her as a resident.

6 minutes ago, Possi said:

so all I need to know is whether or not the pension will be. 

Does she pass this test?

1. You didn’t have a permanent residence in Oregon for yourself or your family during any part of the tax year, and

2. Your permanent residence was outside Oregon during the entire tax year, and

3. You spent less than 31 days in Oregon during the tax year.

On 3/28/2022 at 8:28 AM, ETax847 said:

This is his only rental and he has a full time W-2 job

23 hours ago, ETax847 said:

In his case he seems to be operating the rental property as an investment, not as a trade or business. 

That sums it up right there per 28OA(c)

37 minutes ago, Possi said:

Military are treated differently.

In regards to residency, they are basically treated the same.  From Oregon Pub 17 page 20,

A. Special-case nonresident. You are treated as a “special-case” nonresident of Oregon if you are stationed outside of Oregon and all three of the following are true:

1. You didn’t have a permanent residence in Oregon for yourself or your family during any part of the tax year, and

2. Your permanent residence was outside Oregon during the entire tax year, and

3. You spent less than 31 days in Oregon during the tax year.

And if that does not apply there is another exception:

B. DFAS address outside of Oregon. You are treated as a nonresident of Oregon, no matter where you are stationed, if both of the following are true:

1. You are performing “active service,” as defined in 10 United States Code (U.S.C.) Section 101(d) (3), other than annual training duty or inactive duty training, and

2. You are a resident of another state according to DFAS payroll records.

37 minutes ago, Possi said:

I think her pension will be taxable to VA since she lives here, as a "non-resident" because the military curtsey only applies to wages. 

I question that.  If she was from VA and stationed in Oregon, the VA based pension would not be an Oregon income source.

I don't know about VA, but I think the concept of state sourced income is universal. 

2 hours ago, Possi said:

My client has OR as her military Home of Record. She lives/works in VA. 

I'm almost positive that this income IS taxable to OR and that she would file a "resident" return

She would NOT be an Oregon resident if she meets the following per ORS 316.027:

"• You don’t maintain a permanent residence in Oregon for yourself or your family during any part of the year, and

• You maintain a permanent residence outside Oregon during the entire year, and

• You spend less than 31 days of the year in Oregon."

2 hours ago, Possi said:

She would pay taxes on interest, dividends and capital gains income as well, if this is correct.

If she is a nonresident, those items are not taxable as Oregon source income unless they were attributable to:

(a) The ownership or disposition of any interest in real or tangible personal property in Oregon;

(b) A business, trade, profession or occupation carried on in Oregon.

Also as a nonresident the inherited retirement income is not taxed by Oregon.

See ORS 136.127 for details.

16 minutes ago, TAXMAN said:

Question is can I take remainder of loss on a joint filed 2021 return?

You cannot take any excess carryover for the deceased in the year of death, if that is what you are asking.

7 hours ago, WITAXLADY said:

Sold (exchanged) two properties for 425,000 - yes  and 285,000 for new replacement

If sell price was 425,000, loan payoff 70,000, sell expense 30,000; then 425,000-70,000-30,000= 325,000 to exchange agent; instead of 361,000?

Then 325,000 - 285,000 = 40,000 of cash to seller.  Are we missing something here before we go further?

4 hours ago, Pacun said:

. Are we sure that that letter comes from the IRS? 

1 hour ago, beckster2010 said:

.  This is just too odd for a balance due notice to go out when a TP has until April 18th to pay.

I would go ahead and e-file and see what comes forth, as Pacun and beckster have suggested it is likely a scam.

Agree that the instructions are not clear, but I would follow the joint occupancy rule and apply to MFS.  In the case of fuel cells, the instructions specifically states that the joint occupancy rule does not apply to MFJ, so that leaves a door open for MFS.

"Joint occupancy.

If you occupied your home jointly with someone other than your spouse, each occupant must complete his or her own Form 5695. To figure the credit, the maximum qualifying costs that can be taken into account by all occupants for qualified fuel cell property costs is $1,667 for each one-half kilowatt of capacity of the property. The amount allocable to you for qualified fuel cell property costs is the lesser of:

The amount you paid, or

The maximum qualifying cost of the property multiplied by a fraction. The numerator is the amount you paid and the denominator is the total amount paid by you and all other occupants.

These rules don't apply to married individuals filing a joint return."

3 hours ago, BulldogTom said:

 Got his papers yesterday with a W2 with him as employee and him as employer using his SS# as the EIN.

Did he actually file 941, W-3...etc with his SS# and make deposits?

I don't think they would be accepted without a valid EIN.

11 hours ago, WITAXLADY said:

2 properties sold for $425,000

expenses of $84,000 for paying off commissions, loan etc.

Owner intermediary received $361,000

New property was $285,000

This is not clear to me, looks like more information is needed or clarified.

Basis of property relinquished?

Accumulated depreciation?

Mortgage on old property?

Selling expense?

Mortgage on new property?

Sold (exchanged) two properties for 425,000 and 285,000 for replacement? 

30 minutes ago, TAXMAN said:

I am still inclined to sell @5k recapture 5k. What would you recapture 19k against if the only thing left is land?

If sell price equals appraisal, then yes, report $5,000 towards house.   However, $19,000 still applies to the house, but recapture is limited to the gain, so excess does not matter.

43 minutes ago, cbslee said:

For an in depth discussion of this issue see The Tax Advisor:

While the focus of the article was on a business carried on by a married couple,  it made reference to  Regs. Sec. 301.7701-1(a)(2) which directly applies to the OP:

" Similarly, mere co-ownership of property that is maintained, kept in repair, and rented or leased does not constitute a separate entity for federal tax purposes. For example, if an individual owner, or tenants in common, of farm property lease it to a farmer for a cash rental or a share of the crops, they do not necessarily create a separate entity for federal tax purposes."

21 hours ago, jasdlm said:

  Actually appraised for $15,000, but my client's share was $5,000  (and share of the depreciation was $19,000).

Allocate the sale price of the house based on the appraisal.

21 hours ago, jasdlm said:

sold as 3 joint tenants.

Just caught that part.  No 1065 needed.

19 hours ago, cpabsd said:

Does anyone know where in ATX to check a box for the Section 454 election? 

There is not a checkbox  that I am aware of for the 454(a) election.

I recently used a blank election form with ATX.  Also reported and backed out the income with a notation on form 1041.

18 hours ago, jasdlm said:

A partnership with no organizing or legal documents

18 hours ago, jasdlm said:

when they get a client (only one of the partners is a client) who has been filing this way on a farm or rental property for years.  Do you push the 1065 issue

Is the land actually owed by a separate legal entity; or is it  jointly owned by the individuals who share the income and expenses in proportion to their ownership?

If the land is jointly owned by the individuals, it is not considered a partnership unless the rental activity rises to the level of a trade or business.

22 hours ago, Terry D EA said:

They have spoken with someone who claims a CPA has told them they "have" to pay all of the capital gains tax at the end of the quarter of the sale

22 hours ago, Terry D EA said:

 but frequently wrong advice is given.

It looks to me that by the time it got to you it was  at least 3rd hand information, so hard to say exactly what "advice" was given by the CPA; and under what facts and circumstances the advice was given.

 Section 121(b)(5)(C)(ii) provides a break to taxpayers that for whatever reason end up renting for a short time period after they move out.

For example, a family moves away due to a job change, but with the possibility they might move back within three years.

19 minutes ago, WITAXLADY said:

However, his former wife died   in 2021 - so he could also file mfj with her??

Not if he remarried before the end of year.

3 hours ago, Lion EA said:

So, as long as you live in the house for two years before it's a rental, then you never have to worry about personal use after the rental and still qualify for the full exclusion, less depreciation, when you sell?

 In the OP, taxpayer converted a portion from personal to rental on Jan 1 2019.  From that date, he had a three year window to sell the house for the full exclusion under the 2 out of 5 year rule of section 121; and meet the exception for nonqualified use under section 121(b)(5)(C)(ii).

The basic rule here is that after conversion from personal to rental, you have three years to sell it to qualify for the exclusion; if it was used for personal use for two years prior to conversion and if there was not any nonqualified use prior to the personal use.

I believe the purpose of the code is to prevent an investor from using a home as a rental for a number of years, then live in it for two years for the exclusion.

On the other hand, a taxpayer is allowed to convert from personal to rental and meet the exclusion by selling within three years, provided they have never rented it out previously.   If the house is not sold with three years of conversion to a rental, then nonqualified use is a moot point since there is no exclusion allowed.

1 hour ago, Lion EA said:

OP's client converted to rental and then converted back to personal. Doe the personal use after renting trigger the qualified vs nonqualified use ratio?

I don't see why it would.  As I read this thread, the 5 year period referred to in  Section 121(b)(5)(C)(ii) started on January 1 2019 when a portion was converted from rental to personal and would extend beyond the period of first three months of 2021 when it was used one again for personal purposes.  

I might also question as to whether the rental portion was actually converted back to personal use, or whether for practical purposes, they chose not to rent in the short period prior to the sale.