Wrong cost basis used for 10+ years--now a sale

[JON]

Errors

in depreciation can be caught up in one year rev proc 3115. It still may work to add it to land..???

[JohnH]

Another factor might be how the current $65K sales price was derived. If the house is worth very little and the land is the most valuable part of the current sale, then one could make a retroactive argument that this has "probably always" been the case.

Following along the line of Joan and Uncle Sam's reasoning - valuation often involves a little bit of analysis and a lot of opinion. Since the property is being sold, I doubt an auditor would want to repoen the issue once all the dust has settled.


Just throwing out ideas for consideration.

[origun]

A lot to think about

Thanks to so many of you for your input. Here are a few of my thoughts since reading the most recent posts.

Erchess, yes, I do work for Block and we do amended returns at no charge except for set fees for additional forms. So, even though I will be cleaning up someone else's error, I will not be compensated--but that's not the point! I enjoy challenges and if it involves a 3115, it will be a first time for me and a chance to learn! I just want to do it right. I have contacted our "Tax Institute" for guidance. In my experience they give good advice.

Appelman, thanks for the encouragement about the 3115; I am going to print out the form and instructions today and study it!

I might drive by the house today...if the building is really trashed, I might consider just allotting more to land as some of you have suggested; that would certainly be easier. I could even take a picture in case there's an audit; the sale occurred less than a month ago.

[JohnH]

As Jerry Mealer was always fond of saying over on the ATX Forum:
"it's all about facts and circuses."

[appelman]

And I had always thought...

it was P.T. Barnum!

[JG EA]

It's hard to tell bldg/land allocations based on real estate valuations sometimes.
I had an audit just two weeks ago where for a 3-story residential home where the two top floors are rented out. The real estate tax receipt card shows a building/land ratio of 53/47 ratio - but after the auditor took a look at a picture of the place - gave my client 80% for building.

I would fight this. Why not 100% and no land value? Your client had a good reason for the bldg value. The only exception would be if the tax values are known in your area to be way off base.

[Uncle Sam]

JG - I can't dispute this - there are factors involved I can't discuss on this board - the auditor was generous enough. In other audits I've had involving residential rental property - the auditors have used 85/15 split so this one isn't that far off from that.

[taxea]

If you know someone in RE who has access to MLS they may be willing to get the actual sale info for you. MLS has an archieve that might help you.
I don't think it is necessary to amend K10...I would do it all in the year of the sale.

[origun]

Interesting development in original scenario

I was the original poster--and appreciate all your input--and I learned a lot! However, I guess the whole discussion was for naught--except for my education! My client finally found the original tax return (1999) where the depreciation was set up and I looked it over. The money for the purchase was obtained as a result of a 1031 exchange! Upon further questioning, she began to recall that she had a rental in CA which she was selling with a big capital gain so she had a 1031 exchange set up to defer the gain onto the purchase of 3 cheap rentals in our area. So probably the cost basis used for depreciation was correct after all! Live and learn--and don't expect clients to really understand what they think they know!

[Burke]

Exactly! And a good case for keeping all those old tax returns as long as they involve any sale or depreciation expense of properties. I had a client who came to me some years ago after his preparer died, and the depreciation did not make any sense based on what he was telling me. He then brought in all his old tax returns from 1983 on, and I was able to reconstruct everything over the 20+ years. One of my most-oft questions asked by clients, is "How long do I need to keep my returns?" I am fixing up a list for mailing to all this year.

[taxea]

Exactly! And a good case for keeping all those old tax returns as long as they involve any sale or depreciation expense of properties. I had a client who came to me some years ago after his preparer died, and the depreciation did not make any sense based on what he was telling me. He then brought in all his old tax returns from 1983 on, and I was able to reconstruct everything over the 20+ years. One of my most-oft questions asked by clients, is "How long do I need to keep my returns?" I am fixing up a list for mailing to all this year.

amen to that...if only they would listen to our advice...at this yours did