Need some help

[nalawson]

A new client dropped off at my office returns from the two previous years(done by two different preparers) and a large envelope full of paperwork. He buys and then rents out low income homes. He has 35 properties. He also has rent-to-own properties. His nephew then stops by with paperwork saying his uncle gave him 5 of the properties. He gave me rents received and expenses on properties. He said the properties are now titled in his name. Not sure where to go from here.
I would like the opportunity to do these returns. I understand the rental properties and how to set them up on Sched E, I have an asset schedule from previous preparer. What I don't know much about is the lease/rent purchase properties. What am I looking for? If the uncle did indeed "give" these properties to his nephew, do I use the adjusted basis in the property that the Uncle had as the basis for the nephew/.One previous preparer lumped all properties together, the other separated them. I have them separated. Thanks for any help.
Nancy

[WhiteOleander]

It seems like I remember that if it is rent to own, you still report the income and expenses on the Sch E just like any other rental property. If the sale goes through, then you either show the sale or show it as an installment sale at that time. Technically, there is no sale at this time.

As far as the gifts, the uncle will need you to prepare a gift tax return for the properties that he gave to the nephew. The nephew will pick up the properties with the same adjusted basis that the uncle had at the time of the gift.

[nalawson]

Thank you.

[erchess]

Shopping for the best deal

This guy appears to be the sort of person who thinks anyone who would claim to be a tax professional can do his returns ok. Therefore quite naturally he shops around for price the way most people do for the price of a gallon of milk or a can of green beans. He's not going to stay with you more than a year or so if your prices are not well below the median for your market. I'm not advising you to run him off if you are relatively new and have time on your hands. I am advising you to learn to tell his kind from the kind who value you as a professional and know that not just anyone can do their returns and that not just anyone will give your level of professional service. (Of course you do actually have to give a high level of service for this to work.) Anyway learn to tell these two kinds of clients apart and never work on the former sort when you could be working on one of the latter sort because it is with them that you have the potential for a long term income stream.

[JohnH]

I agree completely with erchess. This client has already waved several red flags, and I'm guessing the worst could be yet to come.

At the very least, you should get a sizable retainer up front before digging too deeply into this project, or take it to a convenient point and hand him a progress billing. You'd be wise to evaluate up front whether he respects your time and skills or if he is just someone who regards you in much the same way as he probably regards his tenants.

[Black Bart]

Either way will work

....One previous preparer lumped all properties together, the other separated them. I have them separated...

I've got a guy with multiple rent houses and I originally made separate "E"s (three houses to a page, isn't it?). He finally got too many (20), it became painful, and I lumped all income/expense on one E listing them as "Various Residential Houses." This works fine; I did it both ways for several years and IRS will take it either way, so you can suit yourself. If you don't already have each house's P&L separate, you might wait until next year and see if he comes back before you do all that work.

Keeping the depreciation schedule assets separate (I assume you're doing that) is a must for sales, convenience, rules, whatever, but I have actually seen some preparers throw that into one entry as "Rent Houses." And IRS just keeps saying "Don't send a 4562 unless it's new -- plug a figure in E and let it be." That attitude seems irresponsible to me.

If you keep that guy, you'll find over the years that IRS has almost zero interest in your depreciation schedules even if you're sending them in with the return (I do). If you find a mistake in amount, method, life, prior depr., or anything at all you can change it at will and it won't raise an eyebrow or cause the slightest ripple. I've even found a couple of mine that didn't add up to the total amount/amounts entered on E and everything still went through (nobody's minding the store on this issue).

Good luck -- and don't kill yourself working on it until/unless you find out he's staying. Thirty-five houses should be good money if he does.

[veritas]

I would read page 7-11

in TTB.

Important information on grouping passive activities.

[Black Bart]

Aw, what for?

in TTB.

Important information on grouping passive activities.

Look here, Northwest -- I just gave her the law according to real life. You don't suppose those goombah clerks spend time E-staring and and pondering aloud -- "Hmm...would I rather post this stuff once or 35 times?"

She's okay unless the losses hit $25K and then she can hit the books.

[veritas]

Didn't mean to

ruffle feathers my friend.

But the problem with grouping these type of activities can come when you start selling them. Normally suspended losses are freed up when you dispose of a passive activity. However when you group them the losses are suspended until the entire group is disposed of.

[Black Bart]

Well, shoot!

(Didn't mean to) ruffle feathers my friend.

But the problem with grouping these type of activities can come when you start selling them. Normally suspended losses are freed up when you dispose of a passive activity. However when you group them the losses are suspended until the entire group is disposed of.

Something else I didn't know about. An' just when I think I've got ever'thang simplified. Well, I guess what my problem is -- is that my client prob'ly doesn't report sales anyway.

My feathers aren't ruffled, but aren't you Harley-riders supposed to be messin' with biker-chicks, dope-dealin', and stuff like that instead of passive-activity losses? Danged non-conformists anyway!

[BHoffman]

Harley riders are supposedly notorious for that passive activity group stuff.

[SueBaby]

Something else I didn't know about. An' just when I think I've got ever'thang simplified. Well, I guess what my problem is -- is that my client prob'ly doesn't report sales anyway.

My feathers aren't ruffled, but aren't you Harley-riders supposed to be messin' with biker-chicks, dope-dealin', and stuff like that instead of passive-activity losses? Danged non-conformists anyway!

BLACK BART whatever--- thanks for keeping me in stitches in laughing at this stressed time for me. This always starts out FUN but some people make it worse than it really is. Think to always hang my hat up for good around this time too. But what would I do without you guys and reading this board! Thanks again for a smile in the midst of storms.