New client walks in today. She says she sold a rental property in 2010 for 60,000 to her brother. Says she purchsed it it 2002 for 40,000 and her brother put no money in but did all of the work in fixing it up, they were partners. The sched E from 2002 says that she paid 25,000. Every year but two there has been a different amount of deprecitiation. In 05 an accountant has the cost basis at 117,550. I have no clue how that was determined but that was the deprecation amount if you divide by 27.5 years in 05 and 06. Could I take 117,500 as the basis and subtract that by 4,275 to get the AB. I'm just not sure I can use 117,550 based on another accountant using that for two years. The depreciation in 09 was 1570 but she did the return on her own. Any advice I am beyond frustrated.
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Determining bais of rental property
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She has tried to be helpful
I'm not sure if she is trying to scam me. She has given all prior years returns. I'm just not sure what the previous accountants were doing. It apprears she changes accountants every two years. This is my first year on my own so I'm trying to gain a client base. Could I call the IRS hotline for help. I really need to talk this one through with someone. Thanks for the advice, everyone on this forum has been great to me.
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Questions
Trying to follow your original post
If the taxpayer purchased the property in 2002 at a cost of $40,000 and immediately a "rental" that would be the amount for depreciation that you would start with (less the land value)
You would have to know the original purchase cost - subtract land value , and then any improvements from the time purchased and the time converted to a rental. Or you might have to look to see if FMV was lower if it was a personal residence and then converted to a Rental in later years
Review Pub 527 -
Unless the T/p performed some major improvements to the property I do not see how the depreciable basis could be the 117,500
If too much depreciation claimed you will have to adjust - I am thinking on a 3115 form to arrive at the gain/loss on the sale, but not sure of this
Good Luck, and if you decide to pursue, get some $$ up front!
Sandy
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The IRS hotline will be useless - don't waste your time on hold with them. If she is changing accountants every two years, there might be a good reason - perhaps the accountants fired her because she is a terrible client. I know you are trying to build a client base, but it sounds like this might be one client you can do without. Based on the information you have, there is almost no way to figure this out correctly and she will probably walk within a year or two anyway. Just politely call her and say you cannot accurately complete her return due to the information constantly changing over the past 5 years. I know it is not easy turning away clients when you are just starting, but sometimes it is the best thing to do.
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Ask the client for a copy of the closing statement when the property was purchased. Then you'll know for sure whether the $40,000 is correct. Then ask how they arrived at improvements over the years. Did you include just the cost of materials or did you include the "value" or your brother's efforts?
I think you need to reconfirm some of the numbers on the depreciation schedule. If you can't find comfort, then I would not prepare the return.
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I agree. In this case, start at the beginning with the HUD-1 and work forward from there. She should have proof of improvements. Once you have all this, recalculate depreciation as it should have been up to current date. Let her do the work to get this info to you. A few years ago, I had to do the same thing -- going back to 1983.
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If you have all of the returns back to 2002 check out the 4562's. They should show any additional assets by class on the year they started for things like remodeling, windows, appliances or repairs. You will need to do a worksheet tracing the correct basis for each asset, and remember to split the sale price among all of the assets. I usually make the smaller assets break even and keep the gain or loss on the house and land, unless it would skew the short term / long term gain or loss.
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Originally posted by RNuse09 View PostI have been trying to build a client base so I have been charging most people 120 for a normal 1040 return. What do you think would be a fair price to charge for this?
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Originally posted by RNuse09 View PostI have been trying to build a client base so I have been charging most people 120 for a normal 1040 return. What do you think would be a fair price to charge for this?
LTOnly in government or politics is a "cut in spending" really an increase. It's just not as much of an increase as they wanted it to be, therefore a "cut".
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charge
I would charge this person a one time charge of probably $500 to just straighten out the mess. Then I would add to that, my normal charge. It is going to take you many hours to fix this mess. As I am sure you have never done a Form 3115 that will take you at least 2 hours is my guess, at a minimum.
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