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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 1242
Experience:  16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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My son and his fiance lived in a condo we owned. After their

Customer Question

My son and his fiance' lived in a condo we owned. After their other roommate moved out we received less than fair market value rent since they were getting married. We subsequently gave him the property and are filing a Form 709.

We owned the property free and clear and made a profit every year for many years and paid taxes on the income.

Since the rent is below FMV but held "for profit" do I still file Schedule E as in previous years and take all of the rental deductions or do I file Schedule A and only take the property tax deduction.

If Schedule A is the answer are Homeowners Association fees deductible under Miscellaneous Deductions?

If Schedule E is the answer how to I handle the question of how many days it was rented at FMV?
Submitted: 1 year ago.
Category: Tax
Expert:  William Ellis, CPA replied 1 year ago.
Hello and thank you for allowing us at Just Answer to assist you. You certainly can and should deduct the rental expenses the same way you've been doing from the beginning of the year until the date of the gift. If you gifted partial ownership to your son, you could continue to deduct the pro-rata portion of any of these costs you are paying. If you gifted the full value of the condo to them and are continuing to pay the related expenses, you should include these amounts on that gift tax return.

Thanks,

Bill
Customer: replied 1 year ago.
I am unclear as to your answer. Do you mean that I should report the income on Schedule E because I have a profit? The other part of my question was how do I handle the question of how many days at FMV if I use Schedule E since it is not at FMV?
Expert:  William Ellis, CPA replied 1 year ago.
What you should do is report the income received and the expenses paid from the beginning of the year through the date of the gift.

The fact that you needed to lower the rent to accommodate your renters does not change the nature of the condo or how you report its activities. Most rental properties do not show profits after depreciation is factored, and this is why there are special rules allowing the claiming of up to $25,000 in rental property losses per year depending on one's modified AGI.

Please let me know if you have any additional questions.

Thanks,
Bill
Customer: replied 1 year ago.
Relist: Incomplete answer.
Expert:  Barbara replied 1 year ago.

Different expert here - Welcome and thank you for giving me the opportunity to assist you with your tax question.

 

Just to clarify, the criteria is as follows:

 

A day of personal use is any day, or part of a day, that the unit was used by:

 

You for personal purposes,

 

Any other person for personal purposes, if that person owns part of the unit (unless rented to that person under a "shared equity" financing agreement),

 

Anyone in your family (or in the family of someone else who owns part of the unit), unless the unit is rented at a fair rental price to that person as his or her main home,

 

Anyone who pays less than a fair rental price for the unit, or

 

Anyone under an agreement that lets you use some other unit.

 

Those days for which you did not receive a fair rental price limits the expenses you can deduct, but does not mean you cannot utilize Schedule E. You are utilizing Schedule E because you have a rental property; however, now the expenses you claim will be limited and your income will, therefore, be greater.

 

My point of reference is the IRS guidelines for Schedule E, which can be found at the following link: http://www.irs.gov/pub/irs-pdf/i1040se.pdf

 

Please come back to me if you require further information or clarification.

 

Thank you and best regards,

Barb

Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 1242
Experience: 16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
Barbara and 2 other Tax Specialists are ready to help you
Expert:  William Ellis, CPA replied 1 year ago.
One thing I would consider if those gift tax returns haven't been finalized is to spread the gifts over several years. This way, you and your wife are able to gift $56,000 to your son and his fiance'' tax free, and then do so again in January. Though your son would record the receipt of the gifts at their fair market value, you would make the gifts based on your adjusted basis in the property. Due to the depreciation claimed, it may not take very long to gift the property to your son and his fiance'' tax-free. I appreciate your accepting my prior answer, and I hope you reconsider the overall rating. Please let me know if I may answer any additional questions for you.

Thanks,
Bill

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Barbara
Barbara
Enrolled Agent, Paralegal
1170 Satisfied Customers
16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.