Rental - 3 Owners

[BOB W]

I have a new client coming in that has been accounting for all rental activity and treating the property as if he is the sole owner because the other 2 owners want nothing to do with the rental of the property.

I haven't seen the prior returns but I'm am trying to picture how I am going to handle this situation going forward. Assuming I allow his return to handle the rental issues at 100%, I would still only depreciate 1/3 of the property.

What do you think???????

[travis bickle]

i think your thinking

Assuming I allow his return to handle the rental issues at 100%, I would still only depreciate 1/3 of the property.

What do you think???????

doesn't make a lot of sense.

You say you want to handle the rental issues at 100%, but only depreciate 1/3 of the property. Last time I checked, depreciation was one of the rental issues.

Why do you want to knowingly involve yourself with a fraudulent tax return?

[BOB W]

Travis> How would you proceed with this, 1/3 only for the client and let the other 2 owners do what they want?

I did say "Assuming"................

[TaxLadyinPA]

An Invisible Threesome

I suppose the other 2 have reasons for not wanting to claim this rental property. i.e. they are on Social Security, Welfare, etc., and want to remain invisible partners.

Right or wrong …. What is the difference as long as your taxpayer claims 100% of the income from the rental …. That he also claims 100% of all expenses and depreciation.

As long as everything is accounted for.

(And all your smarter than me preparers … don't be quoting me on this remark and reminding me how dumb I am ) LOL

If he shows a profit on the rental … it is he who is stuck paying the tax.

I could see this being an issue with losses if he is able to claim a loss against his other income to reduce his own taxes and the silent partners don't have to file because of the above examples. Do you know if the rental shows profit or losses???

Talk about doing a 360 turn …. I really contradicted myself here didn't I? LOL Good luck.

[BOB W]

When he comes in next week I'll know more about what he has done in the past. When the property is sold is when a secondary problem will take place, depreciation recapture.

At this point I'm just trying to gather different points of view, and I thank both of you for your points of interest.

[Bees Knees]

You say you want to handle the rental issues at 100%, but only depreciate 1/3 of the property. Last time I checked, depreciation was one of the rental issues.

I don’t think we necessarily have to jump to the conclusion this is fraud. An owner of jointly owned property can use the property to make money without involving the other owners. Rental income and expenses are reported by the owner receiving the rent and incurring the expenses. If the other owners are not paying any of the expenses or collecting any of the income, then the one doing the activity is the one who reports it all.

Depreciation is the only thing that can’t be taken 100% by the one joint owner, as it is limited by that owner's basis in the property. It does, however, raise the issue of depreciation allowed or allowable. If 100% of the property is being used for the rental activity, 100% of the depreciation is allowable, even though only one owner is allowed to claim his 1/3rd portion. Everyone would have their adjusted basis lowered by depreciation allowable.

[travis bickle]

what i would do?

Travis> How would you proceed with this, 1/3 only for the client and let the other 2 owners do what they want?

I did say "Assuming"................

is more than likely what you would do.

first, i would make sure my client and i are operating on the same page.
i would gather all income, expenses, etc. advise them that (s)he could claim 1/3 and fill out the schedule e accordingly.

i would also advise them about the irs' sentiments concerning fraudulent returns.
and, last -- but not least -- advise him of the ethical positions paid preparers are to uphold and operate under. at least that way he can judge the next preparer he visits.

do i want my practice built on shady returns?
do i want shady taxpayers referring their "friends" to me?
do i want to go to an irs audit under those circumstances?

i am SURE you are thinking along the same lines.

[travis bickle]

you may well be right BK

I don’t think we necessarily have to jump to the conclusion this is fraud.

i guess the first thing that came to mind was someone trying to hide income. but, i suppose, there are other situations -- last i checked, i did NOT know everything :-)

and, i feel confident that BOB would not proceed down a slippery slope.

[BOB W]

i guess the first thing that came to mind was someone trying to hide income. but, i suppose, there are other situations -- last i checked, i did NOT know everything :-)

and, i feel confident that BOB would not proceed down a slippery slope.

Thank for your vote of confidence Travis. I did put the T/P on notice already that I did not like what was being done, the other two owners not getting iinvolved.

During the initial telephone interview, part of my weeding out process of new clients, I asked if he had reciepts for his charitable deduction and he said no but usually deducted a substantial amount. I told him it would be zero if he came to me. He paused and said, well I guess it is better to file a correct tax return.....?????

So the ground work has been set up for change, which will eliminate major problems and a possible in-office heated exchanges.

[Burke]

>>>>> Bees Knees;56095]Depreciation is the only thing that can’t be taken 100% by the one joint owner, as it is limited by that owner's basis in the property.<<<<

What if the other owner(s) has no "basis" in the property? If their name(s) are just on the deed for legal (or whatever) reasons they thought would be a good idea at the time, and assuming their names are not on the mortgage?

[JON]

Depreciation

deduction is allowed or allowable-if you do not take the deduction on the return(s) you still recapture it on the sale. Hopefully somehow the partnership allows items of income and deductions to whoever, that can be done. The others have an interest in gains on sale only. Does have to show economic reasons for split-but partnership is flex as far as who takes what as long as agreed upon and it is not for the avoidance of taxes and has economic basis.

[Gretel]

This was exactly my question some weeks ago muddled up with another question. I am glad it came up again. In my scenario son is just an title and rental activity is conducted by dad only. I was sure dad has to report all income and expenses, since he the one receiving and paying. I also thought depreciation is deductible only for his half interest. Didn't think any further than that. So, I am glad it came up again.

[Bees Knees]

>>>>> Bees Knees;56095]Depreciation is the only thing that can’t be taken 100% by the one joint owner, as it is limited by that owner's basis in the property.<<<<

What if the other owner(s) has no "basis" in the property? If their name(s) are just on the deed for legal (or whatever) reasons they thought would be a good idea at the time, and assuming their names are not on the mortgage?

Well, it depends upon who paid what, or how they all got their ownership interest in the property. However, even if an owner received his or her interest in the property as a gift, he or she is acquiring that portion of the basis in the property from the donor. For example, Dad puts his son on the title as joint tenant. Dad just gave away half of his property and half of his basis to the son, since the basis in a gift is equal to the donor's basis in the gifted property. Both have equal basis after the gift, even though Dad was the one who originally put up all the money.