Schedule E and EIC

[JenMO]

Plugging in all the numbers, just like last year. Client receives rental income on land, put on Schedule E, exactly as 2011. Rental income is over $3200, the investment limit for EIC. This year the Sch E rental income seems to be keeping my client from being eligible for EIC. On the worksheet it shows it as being investment income. In 2011, I inputed exactly the same numbers, mark all the same boxes, and there was no problem with receiving EIC. Which year is correct?

[DexEA]

This year would be correct. I believe any rental income is investment income for the EIC threshold.

[joanmcq]

This year is correct. Did the income change from last year? It's net income, not gross that is the determining factor for Sch. E.

[ChEAr$]

This year is correct. Did the income change from last year? It's net income, not gross that is the determining factor for Sch. E.

Right. A client here got caught in that for 2012. His net rental income was over 3,200, but had he paid real estate tax before 12/31, it wouldn't have been.
So for being late on property taxes, he didn't get about $ 1800 eic. He's learned a lesson here.

[ddoshan]

Are you dedcucting all legitmate expenses such as taxes, possible mileage to check on property, etc. Probably are but a little reminder in case.

[JenMO]

Not many expenses. Rental is self rental, as defined in Sch E instructions - used in a business client materially participates in. What I can't understand is that in 2011 my software gave the EIC and did not treat the E income as investment income and this year it is treating as investment income. I thought because it is a self rental it would not be considered investment, but I can't find the boxes to mark. When I mark as a non depreciable real estate, it won't give me EIC, when I unmark, it does.

[Koss]

Self-Rental

I haven't run into this issue before...

What software are you using?

BMK

[Koss]

Self-Rental

JenMo--

I may have an answer for you.

I suspect that the result you got last year was correct, and that this year, there is something wrong with your software, or you are not checking the correct box, as you suggested in your original post.

Fasten your seatbelt, Girl. This is gonna get really complicated really fast. LMAO

The net rental income is not considered investment income for purposes of EIC if it is not considered a passive activity.

See the worksheet on page 8 of Publication 596.

And according to Publication 925--

If you rent property to a trade or business activity in which you materially participated, net rental income from the property is treated as nonpassive income. This rule does not apply to net income from renting property under a written binding contract entered into before February 19, 1988.

Your client is probably eligible for EIC. Somewhere in your software you should be able to identify the rental income as non-passive. It's probably somewhere in Schedule E. You have to identify it as a self-rental to a business activity in which the taxpayer materially participated. Not all self-rentals fit into this category. Just calling it a self-rental is not enough.

According to the instructions that accompany the worksheet on page 8 of Pub. 596, you should enter the abbreviation NPA on line 26 of Schedule E.

If you can get your software to do that, your client will get EIC.

BMK

[JenMO]

THANKS, I'll keep working on it. I'm using ATX and we have had some problems.

[mactoolsix]

Age 65?

Just a quick thought - did the client turn 65 last year? If so, makes him ineligible for EIC

Mike

[Black Bart]

ATXer here. I hadn't thought about the self-rental & EIC before, but our dependable Koss is usually right about all things tax...

...The net rental income is not considered investment income for purposes of EIC if it is not considered a passive activity...

If you rent property to a trade or business activity in which you materially participated, net rental income from the property is treated as nonpassive income. This rule does not apply to net income from renting property under a written binding contract entered into before February 19, 1988.

Your client is probably eligible for EIC. Somewhere in your software you should be able to identify the rental income as non-passive. It's probably somewhere in Schedule E. You have to identify it as a self-rental to a business activity in which the taxpayer materially participated. Not all self-rentals fit into this category. Just calling it a self-rental is not enough....

so, looking at your schedule E ownership info input lines 1 through 17, I set up a dummy return and, you're right, the Xed "non-depreciable property" (box 15) is killing the EIC.

Not many expenses. Rental is self rental, as defined in Sch E instructions - used in a business client materially participates in. What I can't understand is that in 2011 my software gave the EIC and did not treat the E income as investment income and this year it is treating as investment income. I thought because it is a self rental it would
not be considered investment, but I can't find the boxes to mark. When I mark as a non depreciable real estate, it won't give me EIC, when I unmark, it does.

I guess you'll have to do your own workaround (for sure you can't get through to "support;" I hung on 2 1/2 hrs. last week -- got carpel-ear syndrome). If you agree with Koss' take on it, uncheck the "non-depreciable property" box 15 and check box 10 "for a non-passive rental." Then it'll give you the EIC.

I deny/disclaim all responsibility/liability for the above statements from the dawn of time until the twelfth of never .

[ddoshan]

Checking our system and one of the questions is to allow one to recharacterize the income from passive to non passive on the Schedule E. If the income indeed qualifies for this treatment. I didn't follow thru to see if it would then still affect the EITC.