amanisarea...[at]verizon.net wrote:

- quote -

You rented out 40% of your property, but depreciated 67%?
No, that's not correct. You used 60% as your primary
residence, but excluded 100% from capital gains? No, that's
not correct, either.

This should have been treated as two separate sales, one for
the rental portion, one for the primary residence portion.

- quote -

The IRS cannot check or catch everything. But they
may.........

- quote -

A 2003 tax return can be amended by April 17, 2007. A
return for 2004 or 2005 has more time to file an amended
return.

You need to see a professional preparer.

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<amanisarealty[at]verizon.net> wrote:

- quote -

are you sure you stated the above correctly? Was the total
sq. footage 2700, and you rented out 1800 and lived in the
remaining 900? I.E. rented out 2/3?

or was the rentals 1800 sq. ft and you lived in 2700 sq.
ft., for a total of 4500 sq. ft.? I.E rented out 40%?

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"Paul Thomas, CPA" <paulthomascp...[at]bellsouth.net> wrote:
- quote -

I reported the a gain for the rental as $63K (2/3 of the
gain) but from the post above, it seems like I should have
only reported 40% but I actually depreciated 2/3. OMG, it
looks like I am totally screwed.

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<amanisarealty[at]verizon.net> wrote

- quote -

It doesn't sound right. Why on Earth did you depreciate
and/or expense out 2/3 of the building when it seems that
40% was rental and 60% was personal?

Since you took depreciation, some of the gains from the sale
are taxable.

- quote -

There's no room in the budget for a psychic. They'll
probably catch up to you after they see there is a sale of
rental property, in a year or two after the year of sale.
It's also likely that they'll miss it entirely.

- quote -

It depends. How much was the taxable gain amount anyway?
If it's greater than 25% of your total income, then they
have till the end of time to audit you on the issue.

Otherwise, it's generally three years after the later of the
due date or the processing date of the return.

In short, you're getting close to being safe on the matter.

But, don't guide your friend through that same loop of audit
roulette. Have them seek proper tax advice from an CPA or
EA.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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Could someone please help me with this tax question. I have
owned a three family home and rented out two apartments
which represents approximately 1,800 sq ft and I lived in
2,700 for two years. I depreciated 2/3 of the value of the
building for the two preceding tax years. When I prepared
my taxes I completed a form 4797 and showed the gain
relating to the rental portion but I also showed a section
121 exclusion for the entire amount since I used the
building as my primary residence. A friend of mine is
about to sell a similar building like mine and called to ask
me about the tax treatment. I did some research on-line and
now I am not sure I applied the correct tax treatment. Here
are my questions:

Was I correct? If not, why didn't the IRS discover the
error and requested that I correct the tax return? If it is
an error do I still have to correct it given the fact that
the return was filed three years ago. Does the statute of
limitation apply, if incorrect?

Thanks all.

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