All Forum Posts by: Gunnar F.

I would be delighted if my return were considered child's play. And it certainly has become simplified since I dumped my publishing business and sold a couple of properties.

But I will say that an extremely experienced CPA I used back in Texas a decade ago once said, "I'm sorry to put it this way. But for somebody who makes so relatively little you have the most complicated return I've ever worked on."

Also, I have no problem paying professionals who deliver ROI. Money well-spent. I guess there must be a lot of shortsighted people in the housing provider business since the cheapskate assumption seems to be a bit of a given. Or maybe there are just cheapskates everywhere you look who "know the price of everything and the value of nothing," as my father used to intone.

All the best and thanks for the resourceful comments!

In my case I need an expat tax specialist AND a real estate tax specialist. I admit my focus has been on the former area of expertise since I derive most of my income from a corporate gig. Thanks again. Will reach out in due course.

@Mike H. something you said about carryforward losses might explain this whole thing…!

A couple of years ago I had a strange occurrence at one of my rental homes. The place caught on fire…twice in the space of 24 hours. Nobody hurt. Same root cause — an electrical short. After extinguishing the blaze The fire department failed to turn off the power. So the second time, it burned to the ground in a total loss. Anyway, the silver lining was that the property was worth more without a structure on it because it was in a historical district. The result was a significant profit on the charred lot. 

With that completely unnecessary background, I remember how I was not especially looking forward to paying the tax. It was at that point that my CPA came up with a plan to use significant carryforward losses in connection with the sale, thereby relieving me of my tax burden.

So I believe that my depreciation deductions may have already been deployed. 

I just didn't realize that depreciation deductions were evidently one and the same as the carryforward losses. 

Feeling pretty dumb. 

@Russell Brazil thanks... Could you please explain this comment?:

If I actually had a choice, I might not take take the depreciation since I loathe the recapture on a sale.

Dear Team BP: I am impressed by this wealth of experience and will dutifully absorb these answers.

I do believe this issue will only relate to my rental income as the AGI cannot be reduced.

One interim follow-up: Do any of these corrective measures cause red flags? 

I was once audited in connection with book publishing revenue and while there was zero change to my return it was not fun... and it was expensive. 

And in the real estate case I would struggle to assemble the evidence needed in an audit defense, especially as I live in Asia.

I need to consider whether the game is worth the candle, so to say.

Hello, Brandon. I am grateful for your reply and for your expertise.

I have owned the property since 2002. I face some documentation issues because my pre-2009 returns will be difficult to access as they are in storage in the USA and I live in Asia. Also, I don't remember what I paid with 100% certainty, unfortunately, but I have a pretty good idea. Nor do I remember the title company I used.

You write "Option one is likely the best route to take and the one I was going to suggest. However you may want to make sure you can benefit from the depreciation write offs, or at least understand how that will affect your tax position."

I will need to explore this for sure. I am simply unsure. My taxes are complicated by my expat status.

The property is now under contract to be sold at a substantial profit in 2016, which is what triggered this analysis.

You write: "Depreciation is required, not optional. I'd seriously consider confronting your old accountant and asking for reimbursement of fees and estimated penalties. That's truly poor quality work. What types of certifications did your account have?"

He is exceptionally well-regarded and well-credentialed. This is why I am so confused by this. And when I started working with him he requested previous tax returns specifically because he was interested in how depreciation had been handled by my US-based accountant. Bizarre....

Thanks again for any thoughts you might have.

My current accountant has apparently not been taking depreciation on my rental properties every year. I am a rank novice in this area. Just wondering whether there could be any strategic benefit  to not taking the depreciation deductions in this manner? Another accountant advises we have three options:

1.  Change the accounting method (file form 3115) for the current year -  and take all the depreciation that would have been taken up to that point, that would mean you would have a large loss in the current year on your rental property (info needed for that is, how much you paid, cost of improvements, and when placed into service.

2. Amend the past 3 years (2012, 2013, 2014), this would disallow the change in accounting method, and claim the depreciation that should have been taken during those 3 years, and reduce the basis for the additional depreciation that was allowable

3. Do nothing, lose the depreciation deductions, reduce the basis when sold, and pay any and all taxes related to the sale of the property.

He concludes: Option 2 could be good depending on your anticipated refunds, however, generally option 1 is better though.

Thanks so much, Jake. That makes good sense. On balance the template has been helpful but this has been a useful experience!

Hoping someone out there has had lots of experience with clauses 27 (Default) & 28 (Early Termination) of the standard Texas Association of Realtors lease as it read in 2013... 

My tenant wished to exit the lease early with approximately 5 months left on the lease. I agreed to allow this so long as I could find a replacement tenant. Otherwise, the tenant agreed to stay for the remainder of the term.

I contracted with an agent to find a new tenant, which happened in time for a move-out with three months left in the rent.

My position would be that the tenant is responsible for re-letting fees (agent commission). But the tenant argues this was not actually a "default" since I agreed to allow the tenant to exit the lease.

The tenant thus argues that he was not "abandoning" the lease and that he would only be liable for re-letting fees were this an actual default under Section 27. By contrast, the tenant argues that this was a far more innocent agreed early termination under Section 28, which makes no mention of the tenant's potential liabilty for re-letting fees.

I countered that I am not waiving my rights to re-letting fees and that this remains a default situation. Indeed, I am just facilitating the tenant's early departure while trying to mitigate their liability as a consequence of the default. My agreement to switch tenants does not transform my current tenant's early exit of the lease into a non-default. Nor does the conditional nature of the tenant's departure and the tenant's willingness to stay for the duration of the lease had I not been able to find a replacement tenant render his early exit a non-default.

In brief, switching tenants was not a mutually beneficial activity. And had the situation not been so urgent I would not have incurred agent commission fees (I would have just advertised online like I usually do).

Needless to say, the smart thing would have been to chart all of this out in an ancillary agreement. But I am curious as to any views under these circumstances for future cases. Thanks!