Sch E income and EIC

[Marie]

2011 software gave EIC to client that had over $3200 of real estate rental which he participated in. 2012 won't, it counts it as investment income, no EIC. Which year is right? All numbers on the schedule of both years were punched in identical.

[jainen]

>>it counts it as

According to the Instructions for Form 1040, investment income for EIC is the sum of Lines 8a, 8b, 9a, and 13.

[joanmcq]

Net or gross income?

[mcb39]

My understanding has always been that it is investment income. In 2011 and prior years there was a box to check at the top which eliminated it from qualifying for income for EIC. Have not looked at the Sch E yet this year, but under the rules for EIC, Investment income includes net income from nonbusiness rents and royalties. This is from Quickfinder Page 12-7 and has also always been my understanding.

[joanmcq]

Yes, but for rentals, it's net rental income, not gross. Won on an audit with that too, by going through the EIC investment income worksheet & instructions.

[kcjenkins]

Agree with Joan.

[mcb39]

I guess I should have highlighted the line in my post that clearly states Net income from nonbusiness rentals and royalties. Some of my clients are running out of deductions on their rentals and beginning to show a net profit high enough to disqualify them from EIC.

[Marie]

This rental income is from rental of farmground that client and his brother use on their farm. Client's farmground is used in a dairy operation, the operation is run by client and brother, so brother pays rent to my client to compensate for using my clients'ground. In 2011 it was not considered inv income, but in 2012 it is. The rental mount goes to the worksheet for investment income. I check the 2011, and that amount did not go to the worksheet. As far as I can tell, I've "Xed" all the same boxes.