Have a Tax Question? Ask a Tax Expert
Hi sorry to hear of your predicament today.
Usually, the IRS does not simply disallow expenses. The taxes are a special situation I will address in a moment, but did the IRS give you some reason for the disallowance of the other items?
Did you have any sales during the year in question?
Hi, thx for your response. On Form 886-A they said since my business did not make a profit in three out of five years per IRC 183(d) it is "presumed" that "an activity is not a business." (I sent them all my receipts and this was their reply.)
First off, had you been deducting the property taxes each year?
the property is like inventory
Property ta is NOT deductible each year for raw land you hold.
This and any other indirect cost must be Capitalized....added to your cost of the land.
oh, god, i'm soooo screwed!
If you buy a property for 50K and hold it for 10 years before selling and pay $1K tax each year, you don't deduct the 1K tax each year.
Instead it is added to your cost. So if you sold the property for 100K, your profit would be 100K-(50k + 10K) = 40K profit
The good news is the IRS can only go back to 2010 returns now.
But, if you prove that you have a long-term horizon, the 3 of 5 rule is NOT absolute.
Oh dear, the state audited my income tax last year and didn't find anything wrong. Thx so much for your advice!!!
There are many businesses that lose for 5,6 , or 7 years to get a huge profit later.
oh . . . I expect to make profit
i'm still confused???
State returns follow the federal. It isn't a stand-alone.
Yo have to prove your business model is a long-term hold.
i homestly don't think the 3/5 year rule applies (I looked at it online.)
But your only deductions should be related to properties already sold, and a small office to maintain the business. There shouldn't be hundreds of thousands in losses.
Your continuing large losses (property tax) likely resulted int he red flags for audit.
so botXXXXX XXXXXne is I can't deduct the property taxes as an expense?
good news: Your gain will be much lower when you do sell.
i'm sooo sick, IRS sent me a notice to audit 2011 the other day. Thx for your advice. :(
Time to sell some property! Make money. Make so much money that the taxes are irrelevant!
can't sell, economy sucks, I'm going to have to abandon property. :(
No one is buying. :(
i;m soooo sad :(
thx for your advice!
Have a good...day.
Mr. Klein: I spoke for a half-hour on the phone with a local CPA, she told me that instead of filling out Installment Sales (Form 6252) I should report the principle income on Schedule C and report the property taxes on Schedule C too. She said other clients their office serves uses this "aggressive" technique. She said I am a "dealer" rather than an "investor".
I don't mind the SE tax because I don't have enough credits to qualify yet. I'll call the CPA back tomorrow and tell her what you said about "the entire sale price due in a year." I also have another invitation for a free 1/2-hour consultation. I'll also ask them about reporting the property taxes (on business "inventory") on Schedule A. Thanks again!
In your previous answer you said if I sold land for $100k and only received $20k downpayment, I'd have to report the $100k and pay tax on it. Why can't I just enter in the sum of all the principle I received for the year on Schedule C and pay tax on that?
I can't imagine the CPA who gave me that advice had that in mind that I pay the tax on the entire sales price when all I received was a down payment.
I'll submit all these questions tomorrow, good night!