Amend Return or Utilize Carry Forward

[Nick C.]

Hope I can explain this well enough. Background....I invested in two DST's in Jan of 2022. When I received my 2023 taxes back from my tax preparer, I noticed that they included income from the DST's but did not include any depreciation. I then went back and reviewed my 2022 taxes and they were the same (included income but left out depreciation). I had given them the cost segregation studies for both properties that were provided to me but they didn't use them. When I brought this up, they said they could amend my taxes. I picked them up yesterday and they amended 2023 but not 2022. When I asked why, I think I understood them to say they included the depreciation for both years on 2023 and there is a carry forward of losses ($13k).

Is this the right way or best way to do this? My concern is at some point the DST's will go full cycle and I'll continue to have carry forward losses that I won't be able to use depending on the decisions I make at that time. My other concern is that I'd rather have them amend 2022 as well and have the money now. The amended 2023 taxes resulted in a refund of $7k.

Appreciate any insight on this.

[Ash Hegde]

If you are eligible for a refund from 2022 with an amendment, it's generally better to get the money now rather than having a loss carryforward. 

[Bruce D. Kowal]

Your CPA's took a "short cut"  They included the 2022 depreciation along with the 2023.  So you can't go back and take the 2022 depreciation again.  In other words, if the annual depreciation were $10,000, they amended the return by reporting $20,000 of depreciation for 2023.  You have your refund of $7k.  

As for the Cost Seg studies, did you really give those to your CPA's in advance of the 2022 tax returns?  Did you make them aware of the nature of those studies?

I don't know how anyone can prepare a real estate tax return without some consideration give to the actual cost of the structures themselves. What kind of dox did you give? A full rental P&L such as seen on Schedule E? DST's are complicated. What was reported to you? Are you one of several investors?

How to report Delaware Statutory Trust Income

You know what?  Leave it alone.  And next year, make sure you and CPA"s and the administrator of the Trust are all on the same page.

[Bruce D. Kowal]

More on this:  How Delaware Statutory Trust Ownership Structure Work

[Nick C.]

Quote from @Bruce D. Kowal:

Your CPA's took a "short cut"  They included the 2022 depreciation along with the 2023.  So you can't go back and take the 2022 depreciation again.  In other words, if the annual depreciation were $10,000, they amended the return by reporting $20,000 of depreciation for 2023.  You have your refund of $7k.  

As for the Cost Seg studies, did you really give those to your CPA's in advance of the 2022 tax returns?  Did you make them aware of the nature of those studies?

I don't know how anyone can prepare a real estate tax return without some consideration give to the actual cost of the structures themselves. What kind of dox did you give? A full rental P&L such as seen on Schedule E? DST's are complicated. What was reported to you? Are you one of several investors?

How to report Delaware Statutory Trust Income

You know what?  Leave it alone.  And next year, make sure you and CPA"s and the administrator of the Trust are all on the same page.

Thanks for the reply. My DST's are through Capital Square and they sent me a document that was titled Cost Segregation Studies & More and it was performed by MS Consultants, LLC. That's what I gave to my tax preparer. If I was supposed to give them something else, I don't know what it is. I did not make them aware but included it with all my other documents and would have thought that seeing I had rental income and mortgage expense that they would have noticed or questioned what the cost segregation study was. I also received a 1099-Misc and 1098 from Capital Square along with a document titled Important Tax information which included a letter calling out the Cost Segregation Study, an income statement and balance sheet.

My 2022 taxes were done by a different firm and this year, they "partnered" with another company who took over tax preparation.  In 2022, I sold quite a few stock options so my taxes that year were a lot higher than normal years and I was expecting 2023 to go back to what I consider normal.  When they didn't, I started looking at the forms and realized both years had depreciation missing.  

I have a feeling that the tax preparer took another shortcut and just used last years return to do this one so it was missed again. 

It looks like the one years worth of depreciation and mortgage interest are enough to offset the rental income so will I be stuck with the carry forward and not able to use it if the DST goes full cycle?

Again, thanks for your help and explanation.  

[Michael Plaks]

@Nick C.

Your dogs are awesome, but your story is missing details. We have no way to responsibly comment on it without seeing the two returns you're talking about. It is possible that your latest accountant did everything correctly, and it is also possible that they did not.

Have an experienced real estate tax accountant review it rather than asking on this public forum. We would love to help here, but we need to see the actual returns.

[Melanie P.]

@Nick C. The vast majority of tax preparers merely fill out forms you or their software tells them to fill out. They do not provide advice nor keep up with every development in every section of the tax code. Find a tax professional who holds themselves out as a specialist to real estate investors. When they're done with your taxes you should meet with them to go over your return, ask any tax questions, discuss any advice they have based on the return they just prepared and share your plans for the next year so they can give you advice on them from a tax perspective. 

[Nick C.]

Quote from @Michael Plaks:

@Nick C.

Your dogs are awesome, but your story is missing details. We have no way to responsibly comment on it without seeing the two returns you're talking about. It is possible that your latest accountant did everything correctly, and it is also possible that they did not.

Have an experienced real estate tax accountant review it rather than asking on this public forum. We would love to help here, but we need to see the actual returns.

 Thanks Michael.  I will do that based on the feedback I've received here.  Wasn't sure it was worth pursuing.  Thanks again.

[Nick C.]

Quote from @Melanie P.:

@Nick C. The vast majority of tax preparers merely fill out forms you or their software tells them to fill out. They do not provide advice nor keep up with every development in every section of the tax code. Find a tax professional who holds themselves out as a specialist to real estate investors. When they're done with your taxes you should meet with them to go over your return, ask any tax questions, discuss any advice they have based on the return they just prepared and share your plans for the next year so they can give you advice on them from a tax perspective. 

 Thank you Melanie.  I've certainly learned my lesson that not all are created equal and I need to ask more questions before choosing one.