Opinions needed...Clients going through a long drawn out divorce, now final. Settlement still in progress. Commercial building sold $500,000 gain. Building was rental leased to his corporation. HE left the house 3 years ago converted part of the building to an apartment, complete apartment where he has been residing. this has become his main residence. Oh escrow split the gain to each party...MY TAKE..because he converted to main residence he should be allowed to the exclusion ( 50% depreciation becomes income) SHE has a full gain on her share + 50% of depreciation...what do you think????
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Sounds like a facts and circumstance.
How long did he have the rental property?
When he made the conversion did the commercial rental agreement change?
Does he have receipts from the personal remodeling or did he write this off thru the corp? How is the building set up - like a duplex type so maybe a certain % of the gain would be excluded. -
building owned about 8 years and always a rental the expense was not written off by corp not really duplex type.. one large building with part of it enclosed for apartment ..seperate entrance..i've thought of % but page 6-22 tax book top left business use..he meets exclusion requirement has owned and lived..and was main residence..the rental thing could throw this offComment
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Sounds like you're stretching. "Building was leased to Corporation". Did he claim home mortgage interest anywhere? Property taxes on Schedule A? Adjust building depreciation for non business use portion? Get any "no" answers?Comment
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What if i ammended the corp. returns and 1040's (s corp) do u think it would flyComment
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Cant Have It Both Ways
Your client sounds like some of mine. Want their cake and eat it too.
My guess is that his rental reporting has been deducting 100% of expenses - utilities, depreciation, interest, property taxes, repairs, etc. with NO allowance for anything personal. And now the whole thing is reportable on a 4797, and he doesn't want to pay.
Now all of a sudden he wants Sec 121 treatment. I would tell him he can do this by giving an accurate percentage of his living area, and then go back and refile his rental income based on this same percentage. Schedule E would be impacted by claiming less expense, and only the deductions allowable on Schedule A would be salvageable for his personal portion. He would also be giving up capital gains income (Sch D) for ordinary income (Sch E).
Also, now that you have been made aware of this, I believe you are under professional obligation to report as described above.Comment
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