Real Estate Professional

[S T]

A t/p that is a Real Estate Professional, who owns rental properties is not subject to AGI phase out on losses, correct, and if losses are more than $25,000 t/p can deduct, correct?

If the above is true, what happens if in prior years, prior preparer treated as a passive activity (not a real estate professional) and has suspended losses on the properties? Do those remain as suspended until the property is sold, or can they be brought forward and used this year?

Another question, t/p did a like kind exchange in 2004. If there were suspended losses on the property given up, would they be transferred to the new property received?

Oh my head hurts!
Thanks,

Sandy

[jainen]

Past passive losses

Past passive losses remain suspended even if he can deduct current losses against non-passive income. Passive losses remain suspended even if he trades into a non-passive activity.

[S T]

Passive Losses

If the prior tax preparer did not use the "real estate professional" to not subject the rental real estate losses (agi) on schedule E, can an amended return be filed correcting to release the passive losses rather than carry them forward?

Sandy

[jainen]

facts of life

>>can an amended return be filed<<

I suppose so, but this is one of the few times when I would insist that the client document his position pretty well for me. Not the current year, but for an amendment. I consider it a major inconsistency that what he told another tax professional led to such a different conclusion. I would not assume the first professional made a mistake. In my experience, it is more likely that the client went to a new preparer and changed his story after he learned the facts of life.

[S T]

Prior Returns and Passive Losses

It was just a question to see if it could be done, I don't know that I will. However, the t/p has been an real estate agent for several years, so it appears that maybe the prior preparer did not consider using the passive losses under that rule.

Yes I would definitely review the prior year returns and ask many questions of the t/p if it is a consideration to amend.

I have already found what appear to be several other errors in the 2004 tax return., like no depreciation taken on one of the rental properties, appearing not to limit some mortgage interest for personal residence and taking some deductions for the Schedule C that might be suspect to scrutiny. Seems according to this t/p the prior preparer, prepared tax returns on the side and was a friend, maybe used Turbo Tax!

Thanks for your thoughts!

Sandy

[jainen]

in California

>>prior preparer prepared tax returns on the side<<

Oh, of course that's different. I didn't think of that because we don't see it much anymore. All tax preparers must be licensed and take continuing ed here in California.

[S T]

Licensed Preparers

Yes they are suppose to be licensed here in Calif, but then there are still some are not. Yes they did sign the return, so they are probably licensed, that as you well know doesn't mean they follow the rules and regs. Did you hear about the two firms in So Calif that IRS has closed down!

Anyway for this t/p he says a friend prepared, even though they did sign. Just a lot of items that are "jumping out" at me. And I by know means am perfect when I complete a return either, but try really hard, research and ask questions here on the board and put a lot of back up on the return.

Kudos for the past preparer, as I did get a depreciation schedule in the 2004 copy of the return. Normally we have to put a special request in for that.

I just think maybe it didn't occur to the past preparer that the t/p was a real estate professional so thereby just use the regular passive loss rules. But I don't know why no depreciation on one of the rental properties and of course the Schedule C deductions can always be scrutinized. Sometimes I am not as adventourous on Schedule C as other preparers, particularly when it includes the deduction lines for travel, entertainment, gifts, outside services. For 2005 the client has given me a Hawaii trip that is approx $9K, I think that might be a little bit on the high side, if it even qualifies!

So I appreciate your thoughts and guidance. Probably won't open the doors for the passive loss in prior years and just carry forward to be used later. But I probably will use the Real Estate Professional for 2005 on the rental properties as the T/P needs the deduction and if I don't "toggle" the software for that, then he receives no rental loss as they are over the agi limit this year due to sale of a property. I also need to pick up the suspended loss on that property that has been carried, but wouldn't I only pick up that loss or can I release the other losses on other properties as well?? It is the "pitts" when it is not in my system and I have to re-create the past and carryforwards.

Any thing to watch out for on the rental losses for the Real Estate Professional. He is an active Real Estate Agent, has a 1099 and has 3 rentals that he rents and manages.

Thanks,

Sandy

[jainen]

trip to Bali

>>client has given me a Hawaii trip<<

I got a trip to Bali, but it didn't cost as much as yours. The client assured me he was making important business contacts (he writes computer games). I determined that he was definitely making some kind of contact, since it was his honeymoon!

[KJ Judd]

Realtor

Does a full-time realtor who also does property management for a third party qualify as a real estate professional for her own rental properties?

I believe so. But just wanted a confirmation. Thanks.