DANRVAN

I think you only use 5405 in year of disposition. You could calculate interest and penalty and include with the unpaid balance due.

Now I think I get it. If the FTHB credit was taken in 2008 it must be paid back over the next 15 years. If taken in 2009 or 2010 no recap. The only choice I see is to report the unpaid balance on line 10 of Schedule 2. Decide whether on current year; or the earliest open year and 1040-X forward. Deal with that when and if it comes.

Are you saying they did not take the credit over 10 years ago, but want to do so now? Why would they receive any letters? Maybe I am not following you here. Way past if 10 years ago.

Agree, make it positive and not like you were on the brink of going over the edge. Also I do not agree with pricing a client out your practice as you need to be accountable for your billings.

I am thinking about doing all my business in the "other office" down the hall, and use it exclusively, that will resolve the issue.

Then for sure an allocable expense per the code. 280A - Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc. Paragraph (c)(1) allows an exception per legislative grace: "Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis" That is very straight forward in saying if a certain utility is not used in the business, and in the exclusively used area, it is not allowed. The author of this article takes the same position https://www.journalofaccountancy.com/issues/2020/may/deduct-home-office-expenses-coronavirus-remote-work/ : "Not all indirect expenses may be included in the allocation. For instance, utilities and services not used in the business, lawn care, and the first telephone line to the house all must be excluded. An example of an excluded utility would be propane gas supplied for cooking on the kitchen range." Another article, same position, https://www.wolterskluwer.com/en/expert-insights/expenses-related-to-your-home-office-are-deductible And that article goes on to say "If you believe that your business accounts for significantly more (or less) of a particular utility, you should increase (or decrease) your business percentage of that utility bill accordingly" I agree with that, if for instance your client has a business that consumes 40% of their water usage, but only exclusively uses 20% of the residence; then use 40% as the allocable portion per the code. The code is the authority, the IRS worksheets and pubs are not. This thread has changed how I look at the OIH utility allocation on both a professional and personal level. I don't anticipate any of my clients jumping ship as I bring them into compliance with the code.

And I have been looking at this from the perspective of my personal OIH as well, and admit I have been doing it wrong. There is no way I can justify allocating a personal expense.

I did say "most likely", which is the case of a traditional OIH, and yes I made that assumption from the OP, shame on me.

But different in the case of an OIH. The wiring provides electricity which is an ordinary and necessary allocable expense. The water lines provide an expense which is most likely used 100% personal in the residence; and zero to the exclusive OIH portion.

I have referred to the code throughout this thread which refers to an "allocable" expense. "Allocable" is an an accounting term that relates to cost, benefit, or usage. How can you allocate an expense which is basically 100% for personal use (as in the case of the water usage) as on ordinary and necessary business expense? Unlike electricity which is an ordinary and necessary expense for the OIH. It is not the same as an office in town where a restroom is necessary. Whereas the bathrooms in our home are not part of the OIH and the water used in them is not deductible.

That was not a conclusion based on the pub (which is not an authoritative cite) but on the code. FAQs are also not authority, and some have been proven wrong in the past. The average US household water usage is supposed to be about 300 gallons a day, how much of that is consumed in an an area dedicated 100% to an OIH as an ordinary and necessary business expense? For mine, I have to say about zero. Therefore it is not an allocable expense per the code. But that does not make it an ordinary and necessary business expense. And I am not worthy to cast the first stone in this case. We have a separate electric meter on our well. I have always included that as part of OIH utility cost; at least up until now. After reading the code and understanding the word "allocable" in accounting terms; and knowing our daily water use is about 100% personal for washing clothes, showers, watering lawns, washing vehicles ..etc, I cannot deduct it in good conscience. But as Sara pointed out, if we were running a daycare the cost of water would be an "allocable" expense.

Unlike electricity, gas, or heating oil, water is not allocable to an area used exclusively to the home office. There is direct benefit from the the utilities used to power, heat or cool the home office as ordinary and necessary expenses; the home office consumes a portion of those utilities and they are rightfully allocated per the code section. On the other hand, how much water is used as an ordinary and necessary expense in a home office? Notice that pub 587 does not include water as a utility allocable to a OIH: Utilities and services. Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. However, if you use part of your home for business, you can deduct the business part of these expenses. Generally, the business percentage for utilities is the same as the percentage of your home used for business. Bottom line, water is not a cost of using a OIH so it is not allocable.

But OP said he was deceased. Can he provide any evidence of the transaction? Courthouse records? 2nd party to the transactions? Third parties?

That is an excellent point Sara. I have never thought about it, but it certainly follows the meaning of sec 280A (c)(1) "apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis—"

Not always, I was reviewing past three returns for new clients. Prior preparer had been using 12/31/xx for husband and 12/31/yy for wife which is carried to front page of the Oregon returns. Years of birth were correct but not dates, and they were accepted for e-file by fed and state. Also had another case where dates and year of birth were off for both spouses, but had been accepted in the past by fed and state.

I am not sure what your question is Catherine, but personal use includes any day a rental is used by anyone paying less than fmv.

That will do it. As long as it covers the period of the tax deduction I would be fine with it. Personally, I have never asked to see a letter or statement, but know my clients well enough that documentation could be provided; and most are receiving LTC payments. Not to say that is the right way to do it.

So her state is not tied to the IRC? Oregon is basically tied to fed, so 1040 A rolls into state A.

Have you tried the pre-qualifier site? https://irs.treasury.gov/oic_pre_qualifier/

Nothing to report other than the sale of the house. As Bulldog mentioned, the escrow deposit is basically a balance sheet transaction. The escrow deposit is part of the sale proceeds.

Actual number of days rented divided by the number of times it was rented will give you the actual average rental period. The number of weeks available or days available do not equate to days used.

You are misreading the passive activity rules per Reg. Section 1.469-1T(e): (e) Definition of “passive activity”— (3) Rental activity— (ii) Exceptions. For purposes of this paragraph (e)(3), an activity involving the use of tangible property is not a rental activity for a taxable year if for such taxable year— (A)The average period of customer use for such property is seven days or less; ****************** The exception refers to the definition of a rental activity for the purposes of a passive activity only! Note how it refers back to (e)(3). This means that a 7 day or less rental is not a passive activity and the $25,000 allowance for loss does not apply. Instead the material participation rules of Reg. Section 1.469-5T(a) must be met to deduct a loss. You only use Schedule C when the services are provided and subject to SE tax per Reg. Section 1.1402(a)-4(c). If services are not provided, it is a non-passive rental activity.

You do not report on C because your client is not providing services per the regs. You report on Schedule E as a rental activity even though is is not a passive rental activity per the regs. In other words, in this case it is reported as a rental on Schedule E; but for purposes of the passive activity rules it is not considered a rental per the regs. Therefore you do not apply the passive activity rules and the $25,000 allowable loss. The loss is not allowed unless the material participation rules are met per Reg. Section 1.469-5T(a).

But the passive active participation rules do not apply here per Reg. Section 1.469-1T(e)(3)(ii)(A) since; the average rental period is 7 days or less. Instead, the losses can only be deducted under the material participation rules of Reg. Section 1.469-5T(a).