Sale of Rental Prop.-Expenses

[Bird Legs]

Client bought a condo in 2001 and converted it to rent property at that time.
Sold it in 2006. Note in the papers client left said that there was no profit on the sale because of the improvements/renovations made, when added to the original cost.. During the years of preparing this Sched. E, I did not have any records of any improvements/renovations.
Called client. Said that these costs would be added to the original cost at the time of sale therefore, did not furnish that info to me.
These were not all improvements, but normal maintenance & repairs.
How would you handle this, or would you?
Thanks

[John of PA]

Cannot be repairs

BL, To add them to the cost now, they must be improvements in nature and not repairs; but yes, if improvements in nature I would add them to the cost. Hope this helps (and your in my thoughts).

[Bird Legs]

John of PA

Thanks for your response and concern. They are greatly appreciated.
Rental property repairs & maintenance and the improvements were made in each of the various years. Going back to 2001 and each year after that. Recognizing the statute of limitations for filing amended returns, was wondering what else could be done.
Improvements included new appliances, carpet etc. all in various years. I was not made aware of any of these until this year wile working on the 2006 return.
For all years combined the grand total was $31,000.

[Luis Mopeo]

Are you confident that these sudden expenses were really paid? Weren't there any rental expenses the years you prepared the returns? Why would a client put down some of the expenses but not all of them? Saying "there wasn't any profit" sounds more like wishful thinking than an expression of reality. Especially since the client didn't provide the figures to you in the years the amounts were spent, then didn't provide the figures to you when he asked you to prepare a return with the sale. No profit? Fine. You need the figures to determine the amount of loss. You can't just put down "No Profit" in the gain or loss column.

In any case you have a mess on your hands.

The three-year statute isn't for amending a return, it's for getting a refund on an amended return. You still need to go back and do the computations to establish basis. Repairs and maintenance in the closed years are gone.

You'll need to file Form 3115 to correct the depreciation.

Your client needs to step up and give you a complete accounting. It sounds like he said "I don't want to pay any tax," and expects you to cook the books to make it happen.

[Bird Legs]

Luis

Really appreciate your post.
Yes, part of his problem was my fault in not questioning the client more thoroughly, over the years about the repairs & maint. of the rental property. I did send her organizers during these prior years, which there was one section re. rental property with repairs as one of the items listed.
Client just stated that the thought was that all these expenses would be added to the original cost when rental unit was sold. Client did keep track of them over the years.
Gave me detailed list by year of the type of expenditure, date, and amount when I asked for them.
You are correct regarding the statute of limitation for filing and for receiving refunds. My mind is still not functioning in a normal matter. Too many hours at the hospital.
Again thank you for your response.

[Luis Mopeo]

Really appreciate your post.
Yes, part of his problem was my fault in not questioning the client more thoroughly, over the years about the repairs & maint. of the rental property. I did send her organizers during these prior years, which there was one section re. rental property with repairs as one of the items listed.
Client just stated that the thought was that all these expenses would be added to the original cost when rental unit was sold. Client did keep track of them over the years.
Gave me detailed list by year of the type of expenditure, date, and amount when I asked for them.
You are correct regarding the statute of limitation for filing and for receiving refunds. My mind is still not functioning in a normal matter. Too many hours at the hospital.
Again thank you for your response.

A statement submitted by the client solves lots of the problems. I get frustrated with clients who want a particular outcome and want me to fill in the numbers to get there.

My best to you and yours. Hopefully we on this board can provide some help along the way.

[Bill Tubbs]

Form 3115

Are you confident that these sudden expenses were really paid? Weren't there any rental expenses the years you prepared the returns? Why would a client put down some of the expenses but not all of them? Saying "there wasn't any profit" sounds more like wishful thinking than an expression of reality. Especially since the client didn't provide the figures to you in the years the amounts were spent, then didn't provide the figures to you when he asked you to prepare a return with the sale. No profit? Fine. You need the figures to determine the amount of loss. You can't just put down "No Profit" in the gain or loss column.

In any case you have a mess on your hands.

The three-year statute isn't for amending a return, it's for getting a refund on an amended return. You still need to go back and do the computations to establish basis. Repairs and maintenance in the closed years are gone.

You'll need to file Form 3115 to correct the depreciation.

Your client needs to step up and give you a complete accounting. It sounds like he said "I don't want to pay any tax," and expects you to cook the books to make it happen.

Agree with Luis -- Form 3115 needs to be filed to take care of the capital items. Good news though is it can be done on this coming year's return, so the depreciation that should have been taken the past X years will come off on this year's return.

As far as the repairs -- first, make sure they're not really an improvement
a) outside of the past 3 years -- amend the return if it'll increase any carryforward
b) within the past 3 years -- amend the return if it'll cause a refund

Bill