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Posted by amanisarealty on February 5, 2007, 8:41 pm
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>> Could someone please help me with this tax question. =A0I have
>> owned a three family home and rented out two apartments
>> which represents approximately 1,800 sq ft and I lived in
>> 2,700 for two years. =A0I depreciated 2/3 of the value of the
>> building for the two preceding tax years. =A0When I prepared
>> my taxes I completed a form 4797 and showed the gain
>> relating to the rental portion but I also showed a section
>> 121 exclusion for the entire amount since I used the
>> building as my primary residence. =A0 A friend of mine is
>> about to sell a similar building like mine and called to ask
>> me about the tax treatment. =A0I did some research on-line and
>> now I am not sure I applied the correct tax treatment. =A0Here
>> are my questions:
>>
>> Was I correct?
> It doesn't sound right. =A0Why on Earth did you depreciate
> and/or expense out 2/3 of the building when it seems that
> 40% was rental and 60% was personal?
>
> Since you took depreciation, some of the gains from the sale
> are taxable.
>> If not, why didn't the IRS discover the error and
>> requested that I correct the tax return?
> There's no room in the budget for a psychic. =A0They'll
> probably catch up to you after they see there is a sale of
> rental property, in a year or two after the year of sale.
> It's also likely that they'll miss it entirely.
>> If it is an error do I still have to correct it given the fact that
>> the return was filed three years ago. =A0Does the statute of
>> limitation apply, if incorrect?
> It depends. =A0How much was the taxable gain amount anyway?
> If it's greater than 25% of your total income, then they
> have till the end of time to audit you on the issue.
>
> Otherwise, it's generally three years after the later of the
> due date or the processing date of the return.
>
> In short, you're getting close to being safe on the matter.
>
> But, don't guide your friend through that same loop of audit
> roulette. Have them seek proper tax advice from an CPA or EA.
I reported the a gain for the rental as $63K (2/3 of the
gain) but from the post above, it seems like I should have
only reported 40% but I actually depreciated 2/3. OMG, it
looks like I am totally screwed.
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