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Split depreciation on same property for two returns help please

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    Split depreciation on same property for two returns help please

    Previous preparer decided to split a commercial building and rental unit (all one building - half is an apartment reported on Schedule E and other half is a retail store reported on Schedule C) for purposes of depreciation and income/expenses on two different returns. He did this because the two owners claimed to run the business together............don't ask me about why the heck he did what he did as I have no clue and would not want to go down that road. I am doing both returns so maybe that will help with the resolve.

    For the fix: The so-called partnership dissolved. One owner now has the entire building and financed in his name only. I closed out the leaving partners depreciated assets by disposition on form 4797 for both the commercial building and rental and any other items he depreciated to account for any gains based on assumed values (it was close because they only did this for tax years 2008 and 2009 when they started the business together).

    First, did I do that correctly on that persons returns?

    Second, if I did it correctly, do I just depreciate the new equipment (as half the equipment really) supposedly sold to the other partner now running the business alone? Then continue his 1/2 of the depreciation on his regular return?

    He'll basically have two sets of depreciation for the same single item.

    Thanks for any help or suggestions.

    #2
    Originally posted by kpangelinan View Post
    Previous preparer decided to split a commercial building and rental unit (all one building - half is an apartment reported on Schedule E and other half is a retail store reported on Schedule C) for purposes of depreciation and income/expenses on two different returns. He did this because the two owners claimed to run the business together............don't ask me about why the heck he did what he did as I have no clue and would not want to go down that road. I am doing both returns so maybe that will help with the resolve. .
    For this part of your question: An apartment would be 27.5 years and the Business store would be 39 years. So you have to split them.
    JG

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      #3
      Originally posted by JG EA View Post
      For this part of your question: An apartment would be 27.5 years and the Business store would be 39 years. So you have to split them.
      Yup....I understand that part.

      So, two owners, each on their Schedule C and E split the cost of the property to depreciate.

      If the building was worth $200,000 and half was rental and half was commercial, previous preparer depreciated $50k for Schedule C and $50k for Schedule E on two totally unrelated tax returns. The second tax payer gave up his interest (or sold you can say) to the other tax payer.

      How do I include the $100k sold back to taxpayer who never left the businesses. Add it as additional property?

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        #4
        The issue of a "sale" maybe someone else could do better, let me say this. In rereading your post you are saying that they put an ordinary rental on a C? Yes, now I see the: Why the Heck did they do this?

        It should have all be on an E in the first place. When there are two joint owners sometimes one reports everything and puts a line entry on the bottom with the net going to the other SS#. Or puts a 50% at the bottom listing the two owners and giving the other owner a copy for their return.

        I can't think of how to correct it but a question comes to mind. Did money exchange hands? 4797. But whether to just continue the depreciation or start 50% over I can't think it out. Probably if one sold out to the other then you might have two different basis' (in your case 4).Continuing your client's previous depreciation but all on two places on E and starting another line of depreciation for the bought 50% - on two lines on E. That sounds way to confusing. Hopefully someone else has an idea.
        JG

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          #5
          Originally posted by JG EA View Post
          The issue of a "sale" maybe someone else could do better, let me say this. In rereading your post you are saying that they put an ordinary rental on a C? Yes, now I see the: Why the Heck did they do this?

          It should have all be on an E in the first place. When there are two joint owners sometimes one reports everything and puts a line entry on the bottom with the net going to the other SS#. Or puts a 50% at the bottom listing the two owners and giving the other owner a copy for their return.

          I can't think of how to correct it but a question comes to mind. Did money exchange hands? 4797. But whether to just continue the depreciation or start 50% over I can't think it out. Probably if one sold out to the other then you might have two different basis' (in your case 4).Continuing your client's previous depreciation but all on two places on E and starting another line of depreciation for the bought 50% - on two lines on E. That sounds way to confusing. Hopefully someone else has an idea.
          No money exchanged hands; one taxpayer just walked away and the other assumed the debt, relieving him of any responsibility and ownership. So, this (what you just mentioned) was my first and only thought so far.....the fact that you mentioned it makes me feel a little more warm and fuzzy about it. I appreciate you taking the time.....hopefully someone else can chime in, otherwise, I think it would either 1) past muster with an RO in an audit, or 2) confuse them too causing them to just accept my adjustment anyways.

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