Big box amends Sch E w/ vacation home limitation

[Ross]

Client just left. Had $83 in interest income from the IRS. I asked what it was for. He said that he took my 2009 prepared return to a popular big box preparer and got the long time home buyers credit by amending the return I prepared. The client moved into their newly constructed home in the summer of 2009. The occupancy permit was before November 2009. I had researched it and told him he did not qualify for the credit.

In addition, the big block preparer found an $8k mistake. He didn't have the amended return and wasn't sure what it was. This bothered me. After he left I looked at the 2009 return I prepared. His schedule E had $9k in expenses, but due to him and his wife living there 150 days in 2009, I used the vacation home limitations. Box 2a was checked "Yes". The preparer who amended it must have thought my software did not compute the loss correctly on line 22 of the schedule E and amended it.

My name, phone #, e-mail, website and CPA are all on the documentation with return I prepared. Don't you think the preparer amending the return would have called me and said "It appears that something is wrong, the expenses are not computing correctly to line 22". Or don't you think a supervisor would have examined a return prepared by a CPA before they filed an amended return?!?

I'm also baffled that the amended return went through and my client received the long time home buyers credit. I'm also surprised my client returned to me! I told him he couldn't take the credit and made an $8k mistake (according to the big box preparer).

[JG EA]

This is incredible. What is your client going to do?

[erchess]

Not Really

I worked for a company that offered to check returns not done by it and I (EA in private practice) offer the same. The aforementioned firm also electronically filed returns prepared by taxpayers or other firms. At no time has it ever occurred to me to discuss a return prepared by another firm with the preparer unless asked to do so by the taxpayer. (That actually happened once.) I think you have a good point however on that. On the other hand I think I will keep on not treating a return differently based on the credentials of the otherwise unknown to me person who prepared it.

[Gary2]

...The client moved into their newly constructed home in the summer of 2009. The occupancy permit was before November 2009. I had researched it and told him he did not qualify for the credit.

In addition, the big block preparer found an $8k mistake. He didn't have the amended return and wasn't sure what it was. This bothered me. After he left I looked at the 2009 return I prepared. His schedule E had $9k in expenses, but due to him and his wife living there 150 days in 2009, I used the vacation home limitations. Box 2a was checked "Yes". The preparer who amended it must have thought my software did not compute the loss correctly on line 22 of the schedule E and amended it.

It isn't totally clear from the information here, but I have to assume they were renting out the old home. If that's the case, the vacation home limitation probably doesn't apply. You don't count days before the property was put up for rent.

[S T]

Personal to Rental

If I am understanding it was a personal home and then converted to a Rental. I have always thought the "box" was not checked.

I have always just pro-rated personal residence to converted rental by months, so part was on A and part was on E according to the timing. Never checked the "box" for vacation home limits.

To me it was never a vacation home, it was a personal residence then a conversion. Have I been doing it wrong all these years?

I have a prior year return that I am looking at now, that is what the scenario is, that another preparer did as well, checked the "Vacation Limits" I was going to amend, as all of the rental losses were at a -0- and I think I can recoup some $$ for the client. I thought we could pro-rate all to Schedule A and Schedule E on the conversion from a personal residence to a rental - vacation home limits did not apply????

Interesting topic, I am anxious for some other posts on this thread.

Sandy

[Ross]

The taxpayer lived in the house the first 150 days of the year and then managed to only rent it out 90 days the remainder of the year. My software says "If you or your family used this property for personal purposes at ANY TIME during the year enter the # of days used for personal use and the # of days rented at fair rental price".

Digging further into my software, it says:

"Do not count as personal use:

any days you used the unit as your main home before or after renting it or offering it for rent, if you rented or tried to rent it for at least 12 consecutive months."

The earliest he would have tried to rent it would have been June 2009. I prepared his return in early March 2010. Possibly when the box store amended the return in the summer, he had "tried" to rent it for at least 12 consecutive months and it was correct for them to not count the first 150 days of 2009 as personal use.

I don't know how he managed to get the long time home buyer credit. Possibly after I told him he had to occupy the house after 11/6/09, he then knew to tell the box preparer that he didn't occupy it until then. I thought the IRS was auditing these large credits and requiring documentation.

[S T]

Personal Residence

So if it were a personal residence during the entire time frame (forgetting calendar years) and then it was converted to a rental (t/p used it as personal residence up until conversion to rental in 2009)

Does that make it subject to vacation home limitations?

You have 150 days personal and then 90 days [strikeout]personal[/strikeout] rental , what was the other 125 days?

Sandy

[Ross]

He was unable to rent it the other 125 days. It was either empty or he was working on it.

[S T]

Still Available

Was the property still available to rent? Did the t/p try to rent, either through advertising, real estate listings, etc??? Was it still intended to be a rental - just the market downturned?

What has become of the property after year 2009???

This is just a curious scenario for me, so forgive all the 100+ questions

Sandy

[Ross]

It is still a rental. I know he lived there until the end of May 2009. Then he managed to rent it for 90 days. I believe Sept, Oct & Nov. Then it was vacant for a month or two. The renters stiffed him on two months rent (Oct & Nov). He got someone in there in early 2010 and has been renting it ever since.

[Kram BergGold]

Big Box got it right on rental

Sorry, but when they left the house they converted it to rental property. To be a vacation home they would have to have returned to it.

[Jesse]

Sorry, but when they left the house they converted it to rental property. To be a vacation home they would have to have returned to it.

I would agree. The expenses as Sandy pointed out earlier would need to be prorated Sched A/Sched E accordingly.

[Gary2]

Digging further into my software, it says:

"Do not count as personal use:

any days you used the unit as your main home before or after renting it or offering it for rent, if you rented or tried to rent it for at least 12 consecutive months."

It sounds like the taxpayer hasn't sold the prior home yet, so that this is the provision that applies. But it's incomplete in the sense that if they sold it before the 12 months were up, they still don't count it. See page 22 of Pub. 527.

[erchess]

Long Time Home Buyers Credit

Responses have focused on the rental and I believe we have consensus that OP was in error on that. However I believe that he was correct on the credit. I also suspect that the client lied to Big Box and that they were correct given the facts as they knew them. Does anyone disagree?

I would say that this thread points up the extreme complexity of what we as tax professionals do as well as the need for all of us to respect the work of all others.

[Gretel]

I would say that this thread points up the extreme complexity of what we as tax professionals do as well as the need for all of us to respect the work of all others.

Yes, I agree. We never know the whole story, what was said when another preparer did the tax return, neither what the preparer said nor what the client said.

What I don't understand is the IRS. I thought the homeowners credit only got through if foolproof. Maybe this happened before the IRS got tougher.