Audit Hell
My husband and I own a three family brownstone (we live in the bottom) and rent out the top two apartments. We have just been audited for 07 and 08 and need to pay back in full all the deductions we received for maintaining and fixing up our apartments. We can fight it if we…
My husband and I own a three family brownstone (we live in the bottom) and rent out the top two apartments. We have just been audited for 07 and 08 and need to pay back in full all the deductions we received for maintaining and fixing up our apartments.
We can fight it if we can prove that we spend over 750 hrs managing our apartments/tenants needs etc (easy), and I think as well we need to prove we are real-estate professionals (that one of us spends more than 50% in the real-estate industry (we don’t as both have work in other professions).
wanted to see if anyone has any advice, been successful in winning a similar case and if you do need to prove your a real-estate pro. We have engaged an IRS lawyer but before we start racking up his fees want to see if we should suck it up and pay it all back.
Cheers
DIBS the re-tile of a rental unit should be amortized but included on sched E as business related – you may have a limited abount of time to claim this.
You refer to “all the deductions we received for maintaining and fixing up our apartments.”
The deductions for the rental units should be deducted on sched E as that part of the property is a business.
The cost of fixing up your apartment affects the cost basis of the house and is a taxable event when you sell.
The maintanence of your unit is not deductable.
Rob – folks that work in the real estate industry get tax breaks because they have to work so hard. Obviously.
In all seriousness though, this sucks. Should probably get an accountant for the future — or at least reading the tax forms. Honestly, this can’t be that hard. If DIBS understands it, then it must be pretty simple…. i kid 🙂
Yes, Johnny. A repair, say a bathroom faucet replacement can be expensed. But if you re-tile the whole room it should probably be added to the cost basis and amortized.
Again, an acvountant will know the difference and would not have allowed them to deduct these as expenses against ordinary income.
Isn’t there a distinction between repairs – immediate deduction – versus renovations which are amortized?
why do people who work in the real-estate get tax breaks? what is up with that? can someone explain the logic?
*rob*
They stated they work in other professions and presumably get W-2s from those employers. They are not real estate professionals and the IRS is not going to allow it. You need to file your rental income/expenses/amortization on a Schedule E.
If you don’t believe me then get an accountant.
I think the issue is whether you can deduct your passive losses against other income, since its your profession. Most of us don’t have this problem.
If this wasn’t filed as a Schedule E then the IRS is correct.