Rental Property

[Earl]

Client has two rental properties. Total rents before expenses is $18,000. Client is married and both over 65 so do not have to file until income over $20,000. Is a return required to be filed?

If return is not filed for several years and not depreciation taken on return what happens if does require return to be filed. Is deplreciation considered for the unfiled years if the properties are sold.

[Gretel]

Here is my opinion.

No filing requirement unless for State.

Since they did not receive a tax benefit for the years they did not have to file, depreciation is deemed "not allowed".

[Burke]

I think it is allowed or allowable, and still runs as if it were claimed, as long as the rental properties are still treated as rental properties.

[oceanlovin'ea]

I agree that the depreciation is not allowed in the year that they didn't file due to low income.

But when rental is sold, depreciation will have to be claimed for all years because it is allowed or allowable. It was allowable if there had been sufficient income to warrant filing.

Linda, EA

[Outlookgal]

Client has two rental properties. Total rents before expenses is $18,000. Client is married and both over 65 so do not have to file until income over $20,000. Is a return required to be filed?

If return is not filed for several years and not depreciation taken on return what happens if does require return to be filed. Is deplreciation considered for the unfiled years if the properties are sold.

Depreciation would have to be recapture when they sell it. Depreication is allowed or allowable. Therefore you will have to figure how much they were allowed to claim and include that depreciation in when they sell property.

[Gretel]

Sorry, even if there are 3 against me, that still doesn't make them right . If OIH depreciation is claimed but cannot be used due to income limitations it's neither deemed allowed nor allowable since TP did not benefit.

I did some thorough research on this some years back but don't have it available anymore. I remember finding it strange that it was not even considered "allowable". But it makes sense in the context of taxpayer never been able to get a tax benefit. They are out there to get you but not that much.

If someone has proof that I am totally off track I will be happy to change my opinion.

[oceanlovin'ea]

Gretel, I agree about office in home rules. But this is just rental property. So I don't think that applies to rental property in general. Otherwise, why would it say allowed or allowable?

Linda, EA

[taxea]

Client has two rental properties. Total rents before expenses is $18,000. Client is married and both over 65 so do not have to file until income over $20,000. Is a return required to be filed?

If return is not filed for several years and not depreciation taken on return what happens if does require return to be filed. Is deplreciation considered for the unfiled years if the properties are sold.

answer to depreciation is yes

[Burke]

See Pub 527, page 7: "You stop depreciating property when you retire it from service........ You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events:
1. You sell or exchange the property.
2. You convert...to personal use.
3. You abandon the property.
4. The property is destroyed."

This means, you continue to depreciate it as long as it remains rental property. This does not change simply because the filing threshold changes.

[Davc]

Sorry, even if there are 3 against me, that still doesn't make them right . If OIH depreciation is claimed but cannot be used due to income limitations it's neither deemed allowed nor allowable since TP did not benefit.

That's not the same issue. There is no limitation on depreciation due to not meeting the filing requirements. You are aware that you lose 1/2 of your AGI in charitable contribution carry overs in years you don't itemize? The tax benefit rule doesn't apply to everything.

[JG EA]

But don't forget you can do it over 40 years instead.