Thank you for this post. I have a client who has a million plus carryover loss reported on the year prior to when I started preparing her tax returns. It was during Covid so we couldn’t communicate as well as I usually try to do with a new client. She wants to sell her rental property with a potential million dollar gain. I requested prior year tax returns back to when the rental had a partial step-up due to her sisters death. I found that the tax returns have errors in many years and the prior preparer had made a clerical error understating the proceeds from investment sales by $1 million so the carryover loss is closer to $100,000 now. Your post was very helpful as I start to fix this. It’s very difficult to explain to an elderly client who has a hard time understanding…
Off topic slightly. I understand that the bar for being considered a "trade or business" for the199A deduction for rental property is relatively low (as opposed to the safe harbor) and in this example it seems the activity should clearly be a "trade or business". However, I've wondered -when is residential rental property not really considered a "trade or business". I'd say if it is under "rent not for profit" which wouldn't really generate a 199A deduction anyway. But when residential rental property on a schedule E not qualify for 199A?
It is facts and circumstances dependent, but a not-for-profit rental or a net lease will not rise to a §162 trade or business. Almost all other rentals will.
A future article about proper reporting of not-for-profit rentals would be very beneficial. I think a lot of preparers misreport these. Thanks for all of your outstanding guidance Tom!
I cannot find any confirmation if S corporation with involuntary dissolution can become a Partnership instead of C corporation. Can help with some guidance?
In the example presented, would you look further back to see if there QBI losses from earlier years, i.e. since TCJA implemented 199A? What is proper due diligence to confirm potential prior year impact? I understand those years from 2018-2019 are closed at this time for refund claims, so that would not be beneficial but would checking those years be appropriate?
I think that depends on the situation, their attitude, and the situation. A taxpayer may not care about a $500 refund for the effort involved; however, a taxpayer who does not care about prior significant errors is someone I may not want to work with.
Thank you for this post. I have a client who has a million plus carryover loss reported on the year prior to when I started preparing her tax returns. It was during Covid so we couldn’t communicate as well as I usually try to do with a new client. She wants to sell her rental property with a potential million dollar gain. I requested prior year tax returns back to when the rental had a partial step-up due to her sisters death. I found that the tax returns have errors in many years and the prior preparer had made a clerical error understating the proceeds from investment sales by $1 million so the carryover loss is closer to $100,000 now. Your post was very helpful as I start to fix this. It’s very difficult to explain to an elderly client who has a hard time understanding…
Off topic slightly. I understand that the bar for being considered a "trade or business" for the199A deduction for rental property is relatively low (as opposed to the safe harbor) and in this example it seems the activity should clearly be a "trade or business". However, I've wondered -when is residential rental property not really considered a "trade or business". I'd say if it is under "rent not for profit" which wouldn't really generate a 199A deduction anyway. But when residential rental property on a schedule E not qualify for 199A?
It is facts and circumstances dependent, but a not-for-profit rental or a net lease will not rise to a §162 trade or business. Almost all other rentals will.
A future article about proper reporting of not-for-profit rentals would be very beneficial. I think a lot of preparers misreport these. Thanks for all of your outstanding guidance Tom!
Tom,
I cannot find any confirmation if S corporation with involuntary dissolution can become a Partnership instead of C corporation. Can help with some guidance?
Thank you
No, that does not change the classification for tax purposes. You need to make the revocations and elections.
We need to file a statement of involuntary revocation and file the form 8832 on the year of revocation. Correct?
Thank you
In the example presented, would you look further back to see if there QBI losses from earlier years, i.e. since TCJA implemented 199A? What is proper due diligence to confirm potential prior year impact? I understand those years from 2018-2019 are closed at this time for refund claims, so that would not be beneficial but would checking those years be appropriate?
Would the tax pro be allowed to continue future engagements if the taxpayer declined to amend an incorrect previous return?
I think that depends on the situation, their attitude, and the situation. A taxpayer may not care about a $500 refund for the effort involved; however, a taxpayer who does not care about prior significant errors is someone I may not want to work with.