Rental house

[oceanlovin'ea]

I really need help with this one quickly please. It is on a 2002 return and if it needs to be amended I only have a few days left.

Taxpayer has 4 rental properties on Sch E in 2002....a farm and 3 houses. He showed a profit on 3 of them, mainly because no mortgage and few expenses. One house has a mortgage and it showed a loss. Income of 6104 and a loss of 7261.

The person that prepared this return did not take the loss but put it on form 6198. I am trying to figure out why. He bought a house from a realtor who continued to live in the house and pay him rent until he finished building his new house. They were not ready to use the house yet for themselves so it was okay with them. He has a mortgage on the property (which is allowed) and a few expenses.

So why would this loss not be allowed?

Linda F

[Deltax]

I really need help with this one quickly please. It is on a 2002 return and if it needs to be amended I only have a few days left.

Taxpayer has 4 rental properties on Sch E in 2002....a farm and 3 houses. He showed a profit on 3 of them, mainly because no mortgage and few expenses. One house has a mortgage and it showed a loss. Income of 6104 and a loss of 7261.

The person that prepared this return did not take the loss but put it on form 6198. I am trying to figure out why. He bought a house from a realtor who continued to live in the house and pay him rent until he finished building his new house. They were not ready to use the house yet for themselves so it was okay with them. He has a mortgage on the property (which is allowed) and a few expenses.

So why would this loss not be allowed?

Linda F

The preparer probably checked the box that said the loss was not at risk

[Chief]

Software

Linda, this is a perfect example of over reliance on software. We as professionals need to double check what our software is doing. Good luck on your 1040X.

[Gretel]

Yes, the loss should be allowed.

I have to admit something here. Until yesterday I thought that rental losses qualify only if generated from residential property and couldn't understand why my software allowed the losses.

But if something doesn't make sense to me I investigate until it does.

[oceanlovin'ea]

Update

I did the 2002 amended return to include the loss. That also affected the taxable social security and the itemized deductions. They will get a refund back of over $800. They were so happy that I took the time to find out more about the situation and take care of the matter for them.

The 2003 also had a loss not taken for same reason, but that return has other issues. They already had a letter from the IRS saying they owed over $4000 for unreported income from a distribution from pension plan. He said the money was rolled over. He tried to find the information at home but will have to call the 2 brokerage firms next week. He told me that it went from one company to the other. But his wife told me on Saturday that she could find where he got the check. So if he deposited it within the 60 days, we can straighten that year out too.

He is so thrilled not necessarily that he is getting money back (although that does make him happy) but that I was thorough in looking into previous returns and looking for what was to his best advantage.

It is so nice to be able to help people that have felt they had a hopeless situation.

Linda F