Level 3

Solved

Personal residence then brother lived there and paid the mortgage. Sold in 2018.

Forum|Forum|6 years ago
December 7, 2019
16 replies
59 views

A client bought a townhome in 4/2013 and lived there until December 2016. In 2017 his brother lived in the house and paid the mortgage. Last year preparer reported it as a rental. The townhome sold in May of 2018. So the owner used it as his personal residence for two of the last 5 years but not for 17 months. How do I report an exclusion for the part of the time it was used as a personal residence in 2018?

ProSeries Professional

This topic has been closed for replies.

Best answer by Skylane

if the brother lived in the house for a year and just covered the mortgage (and maybe insurance and taxes) it doesn't sound like there's any kind of profit motivation. You should check on the points that Rick made.... I assume depreciation was established last year and the sch e resulted in a loss. Personally, I'd amend the 2017 and take the sale of primary exclusion in 2018. I don't think it looks suspicious. It does have to be realistic.

rbynaker

Level 13

Was it rented at fair rental value? I'm not convinced this should have been a rental property for 2017.

T

tamurackAuthor

Level 3

That is what I was thinking but I hate to question someone else's work. Especially when the new wife of the client used the CPA for many years. Can I just file an amended and take off the rental property? Wouldn't that look suspicious?

rbynaker

Level 13

I'm also not convinced that it shouldn't have been a rental property either. :) See if you can figure out what a comparable place would have rented for. I'm assuming "paid the mortgage" probably also included escrow which would have covered taxes and insurance. In some areas that might be comparable. Have the client consult with a realtor (i.e. the one who just made commission on selling their house). I think it's fairly easy for them to come up with some comps.

T

tamurackAuthor

Level 3

Been having difficulty with comps of the same size. Smaller places are renting for 1100/mo and brother paid the mortgage, interest, taxes,HOA, insurance for a total of 835/mo

S

Skylane

Answer

Intuit Community Champion

if the brother lived in the house for a year and just covered the mortgage (and maybe insurance and taxes) it doesn't sound like there's any kind of profit motivation. You should check on the points that Rick made.... I assume depreciation was established last year and the sch e resulted in a loss. Personally, I'd amend the 2017 and take the sale of primary exclusion in 2018. I don't think it looks suspicious. It does have to be realistic.

If at first you don’t succeed…..find a workaround

T

tamurackAuthor

Level 3

The schedule E did not result in a loss but they did not take deductions for insurance, HOA Probably because it was a related party.

T

TaxGuyBill

Use the "Home Sale Worksheet".

If it was still a rental in 2018, you can 'link' the Asset Entry Worksheet to the Home Sale Worksheet (it is in the disposition section of the Asset Entry Worksheet).

However, you said it was a personal residence in 2018? Did the client move back into the home? Did he use it as his Principal Residence in 2018? Using it as his Principal Residence would trigger the Nonqualified Use rules.

T

tamurackAuthor

Level 3

He did not move back into the home.

Sign up

Login with SSO

Let's get you signed in

Login with SSO