Discussion:Sch E or Not for Profit

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Discussion Forum Index --> Tax Questions --> Sch E or Not for Profit

Lea (talk|edits) said:

1 May 2011
My new client has been filing Sch E on rental of a home to her son at less that FMV. This creates a NOL in 2010. I plan on filing the income as Other Income with no deduction for expenses. The tax liability is zero. The 2009 preparer deducted very little depreciation to force a zero Sch E profit/loss and therefore no NOL. The property was put into a Trust early 2011 and sold to her son. Will my decision cause a problem with the sale? Should I amend 2009 and possibly 2008?

Solomon (talk|edits) said:

1 May 2011
Recommend amending because §280A treats rental below FMR (facts and circumstances) as personal use. Thus, the only deductions permitted are any mortgage interest and real estate taxes on Sch A.

Harry Boscoe (talk|edits) said:

2 May 2011
Does 365 days of "personal use" lead to the same result for income taxes that finding that the activity is "not for profit" does? I've never before taken the opportunity to address this question, maybe because my clients *always* got to deduct *everything*.

Ckenefick (talk|edits) said:

2 May 2011
Yes.

Solomon (talk|edits) said:

2 May 2011
"Does 365 days of "personal use" lead to the same result for income taxes that finding that the activity is "not for profit" does?"


I believe §280A(d)(2)(C) (below FMR) puts the OP into §262 as personal expenses rather than into §183 not for profit activity. Therefore, only §163 interest and §164 taxes are deductible - in full.

Consequently, theoretically the results would not necessarily be the same because of a false premise of "not for profit activity" in the OP.

Ckenefick (talk|edits) said:

2 May 2011
Depends how the IRS attacks it. If IRS feels there's no profit motive, it will indeed be attacked under Sec 183, at least that's my experience. Here's a sample from the MSSP:

_____ If loss is from a "rental", verify that it was not a temporary rental of the taxpayer's residence. If the rental period was less than a year or two, IRS may view it as a temporary rental lacking in the necessary profit motive under IRC § 183, i.e. a nondeductible loss. Deductions for rental of a personal residence may also be limited under IRC § 280A.

Spell Czech (talk|edits) said:

2 May 2011
Which of these scenarios moves the interest and taxes off of Schedule E and onto Schedule A? Both?

Ckenefick (talk|edits) said:

2 May 2011
Both.

Marcilio (talk|edits) said:

2 May 2011
I simply mark it as a vacation rental, greater than 14 days or 10%, & software does the rest

Spell Czech (talk|edits) said:

2 May 2011
"...& software does the rest."

Except for who's going to apply Section 183? Oh, I guess we're leaving that for the IRS to do...

Solomon (talk|edits) said:

2 May 2011
Or §262.

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