All Forum Posts by: Natalie Kolodij

Were you living in the property from 2020 onward while fixing it up? 

Do you have a grouping election in place for your rental activities? 

If so discuss that with your CPA. There is an impact that comes into play with having a limited partnership interest within the rental grouping and if material participation in the grouped rental activity is still possible. 

Who is "We" ? 

If you created a 2 person LLC you created a partnership 1065 filing (most likely). And those are filed separately on form 1065 and are actually due today.

If it is a single member LLC (owned by one person or if the partners are you and your spouse and you're based in a community property state) the rentals would still be reported on your schedule E on your 1040. 

Additionally; when did you transfer ownership of the rentals into the LLC?

There's more to it than that. 

Non-qualified use is any time during the period the home wasn't used as your qualifying principle residence. If rental use occurs before a most recent period of qualifying use; it's typically non-qualified use. Non-qualified use time results in taxable gain when you sell; even if you've met the 2/5 year rule as well. 

One of the exceptions to non-qualified use is: Short Temporary absences. 

I inserted the code below which has examples as well. 

The examples show that: 

A 2 month temporary absence and renting during that time would be okay. 

But that a 1 year span of time away from the home would not qualifying as short-temporary absence. 

(As for any times longer than 2 months and less than a year; anyone's guess) 

So just hitting the minimum of 4.8 months per year to equate a total of 24 months won't work. 

If you were to leave each summer for 2-3 months and rent the property, you're likely okay and that won't work against you. 

If you rent it for a month while gone for winter break, you will likely also be okay. 

If you do both....now things are fuzzy. More answers may lie in some tax court cases; but there's no definitive hard line of when an absence stops being "short and temporary" and if there is a limitation on a number of "short temporary absences" 






https://www.law.cornell.edu/cfr/text/26/1.121-1

I agree with the other feedback you've gotten. 

I'll also add that as an accountant- you'd be held to a higher standard if it was ever looked at. There have been a few court cases where the taxpayer was also an attorney/accountant and the court always leans into that. That you should have been more aware of what was/wasn't allowed. 

There has only been one case I believe where REPS with a W2 was allowed and I feel like he had an obscure job/schedule. 

It's not the the adjustment is limited; you get to report the full adjustment on Schedule E. 

But the amount of loss you can take is limited. 

You're only allowed $25,000 of passive loss in the year, regardless of how it was generated. 

Any excess/remaining loss carries forward.

Quote from @Michael Kare:

Quote from @Natalie Kolodij:

Quote from @Michael Kare:

Quote from @Natalie Kolodij:

I would recommend a tax professional for this one. Below is the time estimate for form 3115 from the form instructions. It can be a tricky one. 

But a few things: 

1. Your condos may still have land value. Did you confirm the county lists no land value? If the county lists no land value did you confirm your HOA ownership documents don't actually list you an allocated amount/portion of shared spaces and or land values?

2. Is that annual amount based on the set/existing depreciation schedule from 2019 when it dropped off? 

3. It's not prior depreciation. It should be a current  expense of the 481(a) adjustment recognizing the total amount of missed depreciation in 2024 you should have an extra $36,360 as a 481(a) adjustment in 2024; and then your 2024 depreciation amount should reflect the correct current year amount. 

4. Whether the full catch up of missed depreciation results in a tax savings or not depends on your passive loss limitations. 

If your AGI is > $100k then your ability to deduct passive losses will be limited. The 481(a) adjustment feeds into your passive loss so there may still be limitations. (assuming these are long-term rental and you're not REPS)

 Natalie,

Thank you for your reply. How can I practically expense an extra $36,360 as a 481(a) adjustment in 2024? I have tried to insert $36,360 as Prior Depreciation in TaxAct, but the savings are around $400. 

 You typically put it as an "other" expense. I'm not sure how TaxAct needs to handle it. 

Natalie,

Thank you for your response. Your guidance is invaluable to me. I have placed the entire $36,360 into "other" expenses into Schedule E in TaxAct. Unfortunately, only the first $8,000 out of $36,360 provide tax savings. 

Please note that my total rental income for 2024 is ~$15,000 before depreciation and ~$6,000 after.

Should I just print the return and manually insert the entire $36,360 into Schedule E into "other" expenses and paper file the return?

 Unfortunately I can't provide additional assistance to that really. 

Without fully knowing your tax situation and reviewing the return I can't speak to why it's limiting what it is. 

I would contact software support or work with a professional. 

If you held title as tenants in common I would report this 50/50 on each of your Schedule Es. 

I would consult with an accountant about shutting down the partnership as well. 

Was anything reported to the EIN of the LLC?

Two people entering into a business activity technically forms a partnership for reporting purposes. 

So keep that in mind; and consulting with an accountant would be my recommendation. 

If this was all in your friend's name they would report it and have an expense as the payment to you; and you would report your portion/payment. 

Whether this is ordinary income/Schedule C or Capital Gain will depend on a number of factors. 

Quote from @Michael Kare:

Quote from @Natalie Kolodij:

I would recommend a tax professional for this one. Below is the time estimate for form 3115 from the form instructions. It can be a tricky one. 

But a few things: 

1. Your condos may still have land value. Did you confirm the county lists no land value? If the county lists no land value did you confirm your HOA ownership documents don't actually list you an allocated amount/portion of shared spaces and or land values?

2. Is that annual amount based on the set/existing depreciation schedule from 2019 when it dropped off? 

3. It's not prior depreciation. It should be a current  expense of the 481(a) adjustment recognizing the total amount of missed depreciation in 2024 you should have an extra $36,360 as a 481(a) adjustment in 2024; and then your 2024 depreciation amount should reflect the correct current year amount. 

4. Whether the full catch up of missed depreciation results in a tax savings or not depends on your passive loss limitations. 

If your AGI is > $100k then your ability to deduct passive losses will be limited. The 481(a) adjustment feeds into your passive loss so there may still be limitations. (assuming these are long-term rental and you're not REPS)

 Natalie,

Thank you for your reply. How can I practically expense an extra $36,360 as a 481(a) adjustment in 2024? I have tried to insert $36,360 as Prior Depreciation in TaxAct, but the savings are around $400. 

 You typically put it as an "other" expense. I'm not sure how TaxAct needs to handle it.