State Dept. Employee

[Acownt4it]

First time I have had this situation.
My client is a State Dept. Employee and is working overseas. The house he owns in VA is rented out. He lived overseas all year in 2007. One visit home for two weeks. Does the entire amount of mortgage interest and real estate taxes have to be applied to the rental property or can it be claimed on Schedule A for investment and or personal residence?

[BHoffman]

Notwithstanding a bunch of "what ifs", I vote Sch E.



I'm wondering: Will there be a difference in his net taxable income if you report it on Sch A?

[Acownt4it]

yes there is a huge differnece $3000.
Their AGI is $151,000 before the rental property. So if the entire amount of interest and re taxes are included on Sch. E, their loss is limited.
If the entire amount is included on their Sch A the receive the full benefit of these deuductions.
When my client came into see me he did mention that there was special rules for gov't employees living overseas. He wasn't sure what they were, but I told him I would research it. I can't find anything that says it can go on the Sch. A.

[travis bickle]

Page 5 and following of

yes there is a huge differnece $3000.
Their AGI is $151,000 before the rental property. So if the entire amount of interest and re taxes are included on Sch. E, their loss is limited.
If the entire amount is included on their Sch A the receive the full benefit of these deuductions.
When my client came into see me he did mention that there was special rules for gov't employees living overseas. He wasn't sure what they were, but I told him I would research it. I can't find anything that says it can go on the Sch. A.

Pub 527 pretty much spell it out. If used for personal use, personal expense; if rented out, business expense.

Incidentally, I am not sure if I have never met a client who did not say "there's special rules for [folks in my situation]."

There ARE special rules concerning exempting foreign earned income, housing allowance, etc etc but they all have there own peculiarities. The taxpayer may or may not even be aware of them. I remember one case where the Secretary of the Treasury "declared" an emergency in one area. This meant that personnel there could leave ASAP without having to fulfill any 330 day test. My client did happen to know about it and referred me to a notice at the IRS website that outlined the facts of that particular "declaration of emergency".

So, ask lots of questions, and look things up.

[JohnH]

There are special rules for government employees, but only if they are members of Congress and oversee writing the tax laws. They can make it up as they go along. Other government emplyees and regular peon citizens have to follow the rules as written. If you doubt me, just ask Charlie Rangle.

[New York Enrolled Agent]

yes there is a huge differnece $3000.
Their AGI is $151,000 before the rental property. So if the entire amount of interest and re taxes are included on Sch. E, their loss is limited.
If the entire amount is included on their Sch A the receive the full benefit of these deuductions.

A passive activity is a passive activity.

A snip from FSA 3501

[start]As to deductions in general, the Report states the following:

Interaction with other Code sections.-It is clarified that the passive loss rule applies to all deductions that are from passive activities, including deductions allowed under sections 162, 163, 164, and 165. For example, deductions for State and local property taxes incurred with respect to passive activities are subject to limitation under the passive loss rule whether such deductions are claimed above-the-line or as itemized deductions under section 164. [end]

FYI - the Report = the Committee Report on P.L. 99-514 (AKA The Tax Reform Act of 1986)