Missing Asset and now it's being sold...

[Absolut]

I was hoping the title would make you look.

I have a client who had owned a Campground for the last few years and than sold it in 2007.

The problem is this:

#1. Campground was left to her on May 20, 1998 when her husband died. At that time the FMV Campground was $400,000.00, the previous Tax Preparer (HRB) didn't list the Campground on her taxes at all so that it could be depreciated as a expense on her taxes. She said her husband bought it for $250,000, a just a couple of years before he died.

#2. Do I add the value of the Campground to this years tax return at $400,000.00, with no prior depreciation?

#3. Don't I need to get it on the depreciation schedule to show the sale, for $1,000,000.00, and to be able to account for the 2nd mortgage she is holding for $310,000.00 for the new buyer?

#4. Or should just list it on a Schedule D? Like I said from what I can see she has never received the depreciation, because HRB never put it on her Depreciatin schedule, and I didn't catch it until now. So part of this is my fault because I didn't catch that it wasn't on there when I started as her tax preparer.

#5. Also in the sale, her house was included in it, which she lived in long enough to get exempt from capital gains on that, for the $250,000.00 (Single). How do I take the value of the house out? Do I take the $1,000,000.00 and find out what the town had it valued at when it was last taxed?

#6. Out of the Million she sold it for it broke down as follows:

Sale Price: $1,000,000.00
Settlement Charges: $ 2,450.00
Existing Mortgage Pd: $ 91,154.44
Town Taxes Paid: $ 1,743.19
Owner Finance 2nd Mtg: $ 310,000.00

She received a check for $594,652.37

#7. What I was going to do is take the $1,000,000.00, Subtract out the value of the house, lets say it's worth $175,000.00, than take out the $310,000.00 for the 2nd Mortgage she is holding for the buyer, subtract the expenses from the sale, to arrive at her selling price, would this be correct?

Sorry for the long writing but I'm hoping to have all the information you might need. Thank you for any suggestions on this.......it will be greatly appreciated.

[WhiteOleander]

The campground land would not be depreciable. So, there would have to be a break out from when she inherited it as to what improvements might be on the land and their value that would be depreciable. "Campground" is a broad statement. Are their buildings etc?

As for the residence, again, you would have to know the basis from the husband's DOD. And you would have to know what the parties agreed they were paying for the house now. The buyer and seller have to agree to the break down.

[Absolut]

WhiteOleander:
Thank you for your response. I know it was a private sale, and there was just the lawyers involved.

I realize I have to take the Land out, just didn't put it in my message.

Would you now put it on her Schedule C under depreciation for 2007? Show the sale price, once I get the figures on the house for DOD and Sale.

[veritas]

What we have here is....

Failure to Depreciate

[S T]

Is this when

form 3115 be appropriate?

Sandy

[Absolut]

Sandy she's a Schedule C filer, not a corporation. Why would we file 3115?

I know if you have to depreciate if it's allowed, but if she filed tax returns for previous years when it was deeded to her by her husband, but wasn't because of previous Tax Preparer, do I have to amend all those taxes and than do 2007 correctly?

[WhiteOleander]

WhiteOleander:
Thank you for your response. I know it was a private sale, and there was just the lawyers involved.

I realize I have to take the Land out, just didn't put it in my message.

Would you now put it on her Schedule C under depreciation for 2007? Show the sale price, once I get the figures on the house for DOD and Sale.

I think the first place I would start would be to get the value of everything on the DOD. Then I would decide what should have been set up on depr. from the time of inheritance. You could file the form 3115 to claim the unclaimed depr.

As to wether it goes to Sch C, it depends. Were there services provided at the campground? If not, they should have been reporting it on Sch E. No SE tax.

At any rate, you would break out the sale of the residence and report that part under those rules.

[Absolut]

Camprground Defined and some answers

The "Campground" is a place where the client rented space for tourists or locals who wanted a place at the lake, they either brought their campers, a tent, or rented one of her little cabins. She also supplied the power, water, showers, bathrooms, and a pumping station for the campers, she had a dock and a boat launching place for the campers, she had a store where she sold supplies, had a game room, etc..

I think this is what I have to do. I have to get the client to go back to 1998 and find out from the town what the Campground and the House and the Land was valued at, at time of Death.

Once I have these figures I need get a ratio from these figures, so that I can take a percentage of the $1M she sold it for.

I will than amend the 2004, 2005, 2006 returns with the Campground Value. I know I will have to claim the depreciation she didn't take in 1998-2003 returns, even though she didn't get to take it as a deduction, because it was "Allowable".

Once I have these figures I can do 2007, show the sale and the Installment sale of $310,000 to arrive at her Gain or Loss.

Hopefully everyone agress with this...

I want to thank Brian in Florida for calling me via Phone to talk to me about it. I have to tell you all Brian is a life saver when it comes to complicate things like this. THANK YOU AGAIN BRIAN....

[S T]

Form 3115

I believe is used for all business entities, and changes or the "forgotten" depreciation.

Here is the link to the form 3115 instructions http://www.irs.gov/pub/irs-pdf/i3115.pdf I think the depreciation part starts around page 8.

Sandy

[WhiteOleander]

I would only point out one thing. Getting the FMV on the DOD might not be OK. You need to find out how much the asset was valued at by the adminstrator of the estate. If they valued it lower than FMV in an attempt to avoid taxes at that time, the wife is stuck with those values now. And someone had to do some kind of valuation to see if there was going to be an issue for Fed Inheritance tax.

HTH

[Lion]

Were They MFJ?

Were they filing MFJ before her husband died? Was the campground and related business(es) already being reported on their joint return, including depreciating the depreciable assets? And, I agree with Sandy, you don't have to amend years of returns and lose out on earlier years' worth of depreciation, you use Form 3135 in the year of sale to catch up. Start with her husband's estate return and related information to get basis information for your client.