Kea

The way the lawyers wrote this seems strange to me -- but I'm not a lawyer & they may have had a reason to do what they did. Ex-wife had the right to live in the house, but she moved out anyway. There was nothing about a time frame or need to sell the house. Just when they did sell it, the costs of repairs, etc. would be split 50/50. Same for proceeds. It also said she got ownership, mortgage, property taxes and all other debts relating to the house. Divorce was in April 2007 she moved out in June and he started preparing it for rent in July. House did get re-titled in her name only at some point (don't know when).

Best wished for the best result for her.

I'm now thinking I did the whole depreciation thing wrong in the 1st place. Per the divorce, he no longer owned the house. Therefore, no depreciation? I've been taking it for the rental since 2007 on the whole basis. This was after the divorce. The mortgage and property taxes stayed in his name, which they should not have per the decree but he paid since she couldn't (I guess that's why the name didn't change on those documents. Or, her lawyer was quick to change the house but not the liabilities???) But if the divorce said he didn't own the house or the liabilities, why would it have also said that both have to agree to a selling price and that they split the proceeds? In what way is that giving her the house? She moved out that spring (I can check my notes from then for the date -- I needed it then to stop doing her office in home.) Since he had to agree to a price and split the proceeds 50/50, this sounds to me more like he continued to own 1/2 the house. Even though that contradicts another part of the decree. The decree also said that any repairs or expenses related to selling the house would be 50/50. Depreciation at 50% of basis, no depreciation? If there is no gain / loss to him as part of settlement, do I recapture the depreciation I already took (like in a normal sale)? He's not going to be happy if I have to amend 2007 & 2008. And I can't make him file those. I feel like I'm chasing my tail on this one. Thanks!

I noticed the comparison sheets coming out too small. However, I mainly use doPDF instead of the ATX one. The main reason I use it is the smaller file size. But it's been printing the comparison pages correctly and my client letters are on one page. There was one or two that thought they were 2 pages and spit out a blank 2nd page. I just didn't print the blank page when I sent it to the real printer.

Thanks jainen for all your help.

OK, Here's what I've learned from my reading. I was wrong when I said ex-husband got the mortgage & property tax in the divorce settlement. In fact ex-wife got house and all financial responsibility & right to live in the house (she moved out anyway). Even though she got the house and all the corresponding debt, it was also set up that when they sell the house they have to agree to a price and split the proceeds. (Seems contradictory -- if she owns it and is responsible for it, why should he have anything to do with the selling price or proceeds? But, that's what the divorce said.) They couldn't agree on a selling price and realized even if they did, they wouldn't find a buyer that would agree with them. Verbally (not in decree) ex-wife tells ex-husband that she can't afford to make the payments. (She makes $20-30K as a singer & he makes $150K as a software guy.) He tells her he'll take care of the mortgage and property taxes. Title of house changes to her name, but mortgage & property tax remain in his name. Because they couldn't / wouldn't sell the house at that time, the ex-husband rents it out for over 2 years. Lease is between him and tenant. Ex-wife is not involved, but is aware of it (doesn't sound right to me but it's what happened). I'm thinking that he does not take the $5000 loss as a business or personal loss. But this one is just strange and I would appreciate any help. It's her sale of house, not his -- or is it? Per the divorce decree, it's both. I'm thinking I don't report the sale (on his return) and just show the house reverting to personal use? I admit it -- I'm thoroughly confused on this one. It all keeps going in circles. Thanks

I'm glad I could help. & thanks for the condolences.

I believe you are correct about not filing a 1041, but I'll leave that to the experts (I've only filed one before & will most likely file 2 this year.) Changing the address on Mom's return to your client's is correct. You want it to have the address the IRS will use for future correspondence. My father passed away early last year & I filed his regular 2008 1040 with my address. I have a feeling his 2009 1040 & 1041 will end up on extension. Good luck.

Your memory is correct, but it applies only to houses that were converted after they changed the rule -- a year or so ago. I remember telling this client (and one other) about it but also letting them know that it didn't apply to them since they had already converted. Plus, in this case, it's a loss.

The reason I considered the house to still be his personal residence in 2006 was because he was still filing a joint return and still using that address. When he went to school out-of-state, it was considered a temporary absence. At least it was then. I agree that the whole division thing on that seemed strange. If it was HER house, why did HE get any proceeds of sale? I think the only reason it became a rental at all was that they didn't want to sell in 2007 with the depressed prices. Their crystal ball didn't tell them that the prices would stay low. Thanks.

Client bought house with (now) ex-wife in Feb 2003. He went to school out of state from 2005 - mid- 2007. (Yes, this is the same client that couldn't get home buyer's credit.) He lost residency of the house in January 2007 when then-wife served him divorce papers. From Feb 2003 - June 2007, she used a room as home office. From July 2007 - Nov 2009, he rented out the house. House was sold Dec 2009. Per divorce, ex-wife owned house, ex-husband owned mortgage & property tax (both in his name). After closing, proceeds of sale were split equally between ex-spouses. After (all) depreciation recapture, there was a loss on the sale of $5000. He meets 2 out of 5 year test for house to be his principal residence. He was renting it out for over 2 years prior to sale. Does loss count as personal loss (no deduction) since he meets 2 out of 5 test? Does loss count as rental loss since it was a rental up until it was put up for sale? Does it just revert to "personal" since technically ex-wife sold house? (He did have a complete original set of closing docs. And he received 1/2 of proceeds. So he was involved in sale.) I assume rental classification stops when renter moved out and house was put on the market. So depreciation, mortgage and real estate taxes stop going to Schedule E at that point. Or do they continue until sale date? Only reason renter moved out was so the house could be sold. Thanks so much.

I generally refrain from posting personal info, too, but have done so on rare occasion. I have no regrets. The well wishes from a community of co-workers is very nice. Best of luck for your family.

Since I have no credentials (CPA, EA), I can't represent him before IRS. So I'll leave it to others to take on the "test cases." His last e-mail states that he was served divorce papers on 1/30/07 forbidding him to return to the house at that time. So he can't get long-term homeowners credit. Now he's suggested filing separately so he can get a $4000 1st time buyers credit. I'm going to e-mail him the link that shows why he can't do that, either. Thanks so much.

Thanks jainen. I had not seen that Q&A page, although I had looked through some of the other IRS Q&A pages. I knew they had to both qualify for whichever credit or they didn't qualify jointly. However, I missed that for the long term homeowner category they had to have the SAME residence. No credit it is. Thanks so much.

Client and his then wife (now ex-wife) lived in and owned house since at least 2003 when they became clients. In 2005 client started MBA program out of state. He filed with his then-wife in 2005 & 2006 with the same Austin address. They divorced in early 2007 (not sure of date) and ex-wife moved out sometime before July 2007. After MBA program, client moved to Houston. In July 2007, he started renting out the house. He is now re-married (in 2008) and they are closing on a house in 3 weeks. At what point did the "principal residency" of the old house end? 1) When he started MBA program out of state -- I don't think so because he continued to file tax return with Austin address and because his (then) wife still lived there. 2) When the divorce was final? 3) When ex-wife moved out? 4) When it became rental property? New wife still owns a house in Austin. I know she lived in it in early 2008 when I did her 2007 tax return (as single). I still need to find out the dates she moved in and out when she bought it. She doesn't qualify for 1st time buyers, but may qualify for long-time resident. Thanks

My apologies. I just did a quick check at EIC and saw the bit about qualifying child and then went to those rules. Since I hadn't researched the whole flow chart, I just put the support issue out as a "maybe."

The age isn't a factor since brother # 1 is disabled. It looks like all the other tests for Qualifying Child are met except possibly the one about the child must "Not provide more than half of his own support." Good luck.

Thanks Deb. Client returned to work after the disability ended. She had a stroke and missed about 3 months of work. But she's now making a good recovery.

Also a pain, but you may want to check with the payer and see if they filled out the form wrong. I just had to do that for a mutual fund that was bought and merged into another fund family. All the paperwork we got at the time was that it was a tax free transaction. Then yesterday I got a 1099B for the full amount that was transferred. It was labeled as a redemption. I called and the lady I spoke to said she would look into it. She called back and said the form was in error and they will be mailing corrected 1099s. Who knows, that might work for you. I do agree that it would go on line 21, but it should not be box 7 regardless. Good luck.

I do a only 2 CA returns each year, but have a new situation this year. Just making sure I didn't miss anything in the instructions. Client just started receiving Social Security benefits. These are not taxable in CA. Disability payments received from CA SDI are not taxable to CA, either. (I know they aren't taxable on the federal return since the premiums were paid by the client.) Did I get these right? Thanks!

But, now what do I put in the description for the Insurance Company & Policy #?

Thanks for your help. I was mainly confused by one portion of the instructions saying "ANY" of the incident and then the list ending in "AND" so that all incidents should be included. Your reference indicates that "ANY" is the important term I'll include it unless I find out there was some reason decedent couldn't choose the beneficiary. I can't imagine that being the case. Thanks again.

No, I'm not an attorney. I'm just trying to plod through my 1st 706. I do need to clarify one point. The decedent COULD change the beneficiary on both benefits (VA and pension). But that was the only control factor. The amounts are relatively small -- $5000 from the VA & $10000 from the retirement plan. It just seems like those 2 sections of the 706 instructions contradict each other.

I just want to make sure I'm reading the instructions correctly. They say to report insurance proceeds if they for the benefit of the estate. It states that there must be an obligation to use proceeds to pay taxes, debts or charges. The other reportable insurance is if it is receivable by a beneficiary other than the estate. In this case the decedent had to be owner of the policy. In my client's case, the only insurance and death benefits were from the VA and pension. In neither case was there any requirement about how to use the money and the client did not own either policy. The only control factor the decedent had was designation of the beneficiary. When listing the incidents of ownership in a policy, between the next to last incident and the last incident, it states "AND." However in the paragraph leading to the list of incidents, it states the incidents of ownership in a policy include ANY of the items listed. I'm thinking they shouldn't be included because of the "AND." Also decedent had no control of the policy except selecting the beneficiary. Who else would pick the beneficiary? (OK there are those policies that some companies take out on their employees and then name the company as beneficiary. -- Those definitely should not be included on a 706 Sch J.) Decedent couldn't sell it, cancel it, use it for a loan or anything else. If either or both of these benefits are included, the description wants the name of the insurance company and the policy #. Where would the client find this since the decedent did not own either policy? Thanks.

I try to avoid MFS as much as possible for those reasons. I've generally been able to convince clients to file MFJ when I explain how much it helps both of them. But that's not always an option.