Welcome Guest. Register Now!  



 
 
LinkBack Thread Tools
 
Old 05-10-2013, 02:42 PM
Junior Member
 
Join Date: May 2013
Posts: 1
Question Not-For-Profit Rental?

The situation:
-Wrestling with my 2012 1040. Have filed for an extension.
-I'm not a real-estate professional or tax professional.
-Own two residential rental properties - #1, #2
-Both are rented at FMV rates to non-relatives.
-Purchased property #1 in 2005 as an investment to rent out.
-Property #2 was my home that was paid for and took out a mortgage on it to buy property #1.
-In 2007, moved to another state (where I'm renting a place to live) and converted property #2 to rental because I didn't want to give it up. Thought I might move back in some day.
-Property #1 has shown a profit on Schedule E for 6 years out of 8, including the first partial year (2005).
-Property #2 has been in the red on Schedule E for 4 years out of 6, thru 2012, including the first partial year (2007). Filed a Form 5213 in tax year 2010 to postpone a not-for-profit categorization. Not sure it does much. Loss is mainly because of interest on the mortgage I took out on #2 to purchase property #1.

The questions:
-Do I have to now start treating property #2 as not-for-profit on my 1040 for 2012 and report it in accordance with Pub 535, Chapter 1?
-How tolerant is the IRS about categorizing a property as not-for-profit? An accountant has said to me casually (i.e. not for a fee) that since I'm not a real estate professional, I don't need to change the status of property #2 and can continue reporting it as a Schedule E loss. Will the IRS call me on it if I do that?
-Could I (and the IRS) consider the two rentals as a "single activity" and avoid a not-for-profit categorization that way? The combined Schedule E net-net for the two properties has been in the red 3 years out of 8 but only 2 years of the past 6, including 2012. The properties were being reported in past years on two separate columns of the single Schedule E.

Thanks in advance.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
 
Old 05-11-2013, 06:22 AM
Moderator
 
Join Date: Oct 2010
Posts: 2,800
Quote:
Originally Posted by pfdoher View Post
The questions:
#1Do I have to now start treating property #2 as not-for-profit on my 1040 for 2012 and report it in accordance with Pub 535, Chapter 1?




#2How tolerant is the IRS about categorizing a property as not-for-profit? An accountant has said to me casually (i.e. not for a fee) that since I'm not a real estate professional, I don't need to change the status of property #2 and can continue reporting it as a Schedule E loss. Will the IRS call me on it if I do that?







#3Could I (and the IRS) consider the two rentals as a "single activity" and avoid a not-for-profit categorization that way? The combined Schedule E net-net for the two properties has been in the red 3 years out of 8 but only 2 years of the past 6, including 2012. The properties were being reported in past years on two separate columns of the single Schedule E.



#1There is a presumption that you are renting the property for profit if your rental income has been more than your rent expenses for 3 years out of a period of 5 consecutive years. If you are just starting to rent the property you can elect to have this presumption made after you complete the 5-year period. To make this election you need to file Form 5213 within 3 years from the due date for filing your tax return for the year you first rented the property. If you receive a notice from the IRS proposing to disallow your rent expense deductions, you must file Form 5213 within 60 days.So, if you use this form, it should be filed within 3 years(2014) of the due date of the return(2011) for your first year in rental activity.



#2I guess it depends; I guess you need to contact the IRS for more accurate info in detail. If your activity necessitates characterization as a hobby, then you need to group your hobby related exp into 3 categories. #1; any non-business related expenses explicitly allowed as personal deductions by the tax code, such as home mortgage interest or state taxes. #2: expenditures typically deducted when incurred in connection with a business or investment activity, such as advertising, office supplies or travel expenses. #3: consists solely of depreciation and amortization charges for assets used in the hobby activity.You need to report the results on your tax return. you must use Sch A of Form 1040 to report deductions for hobby expenses. The hobby activity rules do not impose any further limitations on category one deductions. However, you can only deduct category two expenses to the extent that hobby income exceeds category one deductions. Likewise, the tax code allows deductions for category three items only if a taxpayer has hobby income remaining after application of category one and two deductions. Further, you must report category two and three expenses as misc itemized deductions on Sch A of Form 1040, which effectively reduces the value of the deduction by 2 percent of total your income.






#3The IRS established a special procedure by which taxpayers can make a late election to treat all their real estate activities as a single activity for purposes of meeting material participation rules. Generally, rental activities are presumptively treated as passive, restricting taxpayers’ eligibility to recognize certain losses and credits. Some tax law provides an exception from the presumption for qualifying rental real estate activities, in the form of thresholds for the amount and type of personal services performed in rental trades or businesses involving real property in which the taxpayer materially participates. Each of the taxpayer’s real estate interests is treated as a separate activity for these tests; however, some tax law allows a qualifying taxpayer to elect to instead treat them as a single real estate activity.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
 
Old 05-23-2013, 01:52 AM
Junior Member
 
Join Date: May 2013
Location: New York,USA
Posts: 10
That's really nice for me to get the right deals and it would also make me clear many things that how we are dealing with the things. Thanks that you made the really nice answer of it.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Ads
 

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Son living in home - not for profit rental? Whalesh For 2013 1 04-05-2013 12:23 PM
First home that son is living in - not for profit rental? Whalesh For 2013 0 04-05-2013 10:37 AM
Rental not for profit? sjnbrody Income 1 03-02-2011 10:35 PM
Rental income question about not for profit sjnbrody Rental Real-Estate 0 03-02-2011 11:16 AM
If I buy a house, sell it shortly afterwards, for a profit, and reinvest the profit.. hollowman512 Capital Gains 0 04-18-2009 04:49 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning