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Old 04-09-2011, 12:49 AM
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Never (maybe) Depreciated RENTALS

A non-computer-literate friend of mine has a rental situation:

His tax preparer passed away some time a little over 2 years ago.

My friend doesn't have copies of those returns and can't retrieve them (2007 tax year & earlier. BAD. I know)

He's gone to 2 different preparers the last 2 years showing them the prior year's return.

His long time preparer was convicted for tax fraud, so my friend's dilemma doesn't surprise me.

He trusts me and asked me if I could look at his taxes before he finds another preparer.

He doesn't want to go back to the last preparer because of an error they made (taxes were done by hand and they looked up the tax amount and inadvertantly wrote down the wrong amount)

HERE's the CURRENT PROBLEM:

He can only provide me w/last year's return to review.

On his rentals, NO DEPRECIATION was claimed.

I can't figure out if in PRIOR years any depreciation was claimed, in order to use those numbers (My guess is NO)

What I'm guessing is happening when he goes to these preparers is a communication problem (foreign born, both him & them).

I'm guessing they don't care to ask him for the records or numbers (hassle). They just want their money and him out the door. Just guesses.

Before he finds a new preparer, any recommendations I could pass along about what he'll need to do & what forms he'll need to file? (4652? 3115?)

There's practically nothing on the internet that I can find relating to this.

I already told him HE'S GOT TO SAVE EVERYTHING from now on. Including receipts, by the way (same problem).

Thanks in advance for any help.



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Old 04-09-2011, 03:29 AM
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“Before he finds a new preparer, any recommendations I could pass along about what he'll need to do & what forms he'll need to file? (4652? 3115?)”--->Needless to say, you need to be sure to depreciate your rental property because the IRS assumes that you took it even though you actually do not take the depreciation on the rental property. So, if you don't take the depreciation, you will STILL have to pay taxes on the property when you sell it through so called depreciation recapture! When you sell property that has been subject to the allowance for depreciation, you have to figure your adjusted basis. Your adjusted basis is generally your cost plus improvements, less the amount of depreciation allowed or allowable. Hence, if you did not claim all the depreciation you were entitled to, you still have to use the amount that should have been claimed as an adjustment to your basis. Generally, rental income and rental expenses from rental property are reported on Form 1040, Schedule E. You need to use the Form 4562 for the depreciaiton of the rental property.

On Form 1040, Schedule E, you need to report rental income and rental expenses including mortgage interest, property tax, depreciation, and repairs. If your rental expenses exceed rental income you may report a loss of up to $25,000 on your tax return( I mean as long as you actively participate in management of the rental property), limited for adjusted gross incomes above $100,000. If you also use the dwelling unit as a home, or rent it at less than fair rental value, certain restrictions apply to the tax deduction of your rental expenses on your tax return.
Please visit the IRS Website here; http://www.irs.gov/pub/irs-pdf/p527.pdf


Last edited by Wnhough : 04-09-2011 at 03:37 AM.


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