New client sold residential rental in 2005 and brought in paperwork to determine tax on gain. The tax preparer who previously prepared clients tax returns had a basis of $54,000 for the rental and was completely depreciated a few years back. The client brought additional paperwork that showed the original price for the residence was $18,500. Being rental was fully depreciated at the $54000 cost, how should I handle the discrepancy of the basis??
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peggysioux -
Looks like there were improvements added to basis that were included in the depreciation schedule from years ago that your client isn't telling you about.
I would make the client come in with every depreciation schedule and every tax return going back to the year of purchase. Generally, discrepancies like this are the result of the client having amnesia, and not the result of the previous accountant messing up. -
zero regardless
The current adjusted basis is zero regardless of the original purchase price, so you will have no trouble doing the current return. You must advise the client that his information does not agree with previous years, and it is up to him if he wants help researching it. There are many reasons why his purchase price might not equal the depreciable basis.Comment
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I agree and would probably accept the prior accountants depreciation basis, however, remember that the cost of the land is probably not part of that figure.Originally posted by jainenComment
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Basis makes a difference.
Recapture of depreciation is taxed at a different rate than the gain from the original purchase price. You need depreciation schedule and what happenned to the land. Is everything 1250 property???Comment
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