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AZ-Tax
04-23-2009, 11:15 AM
I have a client depreciating a rental: In Service April 1, 05 cost basis $175K, total depreciation thru 2007 is: $17766. Rental burned in late 07 filed a form 4684 on 07 tax return but not a total loss. FMV prior to fire $150K, FMV after fire $135K received $9100 insurance money and loss on line 14 of form 1040 (07) was $4800. Would the cost basis stand at $31491 at the end of 2007?

In 2008 client’s tenant left stating structure as unlivable. Client tears down remaining structure and replaces it with used Manf home.

Ok, I don’t believe I need to go back and amend anything on 2007, I think but now in 08 the property needs to be disposed of at a $0 sale price correct? I addition, do I need to complete another 4684? My hunch is not.

Lastly, my client was already at a $0 taxable income prior to the loss in 07 and 08 yet my “Fed carryover wkst” has no amts appearing in “loss and carryover exps” Can this generate a NOL?

kaimana
04-23-2009, 05:10 PM
His basis after the loss would be original basis, minus the loss, plus the insurance payment. FMV for the loss on the 4684 has nothing to do with his Sch E depreciation basis.

If your client is going to continue to rent the property with the new building on it then I would maintain the original basis depreciation and add an additional depreciation for the cost of the teardown and the Manf home. I don't think an additional loss was created because what he did was repair/replace the existing structure. The is all expenses/depreciation items to my mind.

A rental is not, as a rule, considered a business...the loss would not create an NOL because it was not a schedule C. Owner is allowed a $25,000 loss on a rental which is why there is no carryover.

If the loss zeroed his income, that's it.

WhiteOleander
04-23-2009, 05:17 PM
Sch E rental loss can most certainly create an NOL.

PG 8-15 TTB

What is a Net Operating Loss (NOL)?
An individual, estate, or trust may have an NOL if
deductions for the year exceed income. NOLs
are caused by losses from the following:
• Trade or businesses (Schedules C and F losses,
or K-1 losses from partnerships or S corporations),
• Deductions for work as an employee (Form 2106),
• Casualty and theft losses (whether personal or business),
• Moving expenses, and
• Rental property (Schedule E).

kaimana
04-23-2009, 05:23 PM
sorry, I've never seen a SCH E create an nol...

kaimana
04-23-2009, 05:27 PM
I can only surmise that the amount of the loss was not sufficient to create an NOL. I have never seen a Sch E create an NOL. I guess the AGI minus the standard deduction or itemized deductions a negative amount due to the loss exceeding the income.

BHoffman
04-23-2009, 05:47 PM
A rental is not, as a rule, considered a business...the loss would not create an NOL because it was not a schedule C. Owner is allowed a $25,000 loss on a rental which is why there is no carryover.

If the loss zeroed his income, that's it.

Completely disagree.

If the loss exceeds what is allowable, it always carries forward and is not limited to the $25k special allowance. See IRC 469.

The $25k allows passive rental income to offset nonpassive income as long as the owner "actively participates". This allowance is subject to an AGI phaseout. The allowance is also limited by filing status. See TTB pg 7-12.

Koss
04-23-2009, 08:12 PM
Hmmm... so it burned down before the taxpayer had completed the 27.5 years of depreciation... and now it's unlivable...

Isn't this a textbook example of accelerated depreciation??

:D

BMK

Lion
04-24-2009, 09:40 PM
Only if an eccelerant was used to eccelerate the fire. (How do you spell that, anyway?!)

S T
04-24-2009, 10:12 PM
Hi Lion, I know you know the definition, but here is the spelling

Fire accelerant
In fire protection, an accelerant is any substance or mixture that "accelerates" the development of fire. Accelerants are often used to commit arson, and some accelerants may cause an explosion. Some fire investigators use the term "accelerant" to mean any substance that initiates and promotes a fire without implying intent or malice.


Sandy