Amended Return and First Time Homebuyer Credit

[Patrick Michael]

Good morning Tax Pro's,

New client has asked if I can help straighten out a little mess.  They sold their primary residence under a land contract in 2012 however the previous preparer treated it as a rental instead of a installment sale.  The clients had received a first time homeowners credit when they purchased the home and instead of paying off the remaining balance in full when it ceased being their primary residence in 2012 they continued paying the $500 a year for 2012 to 2014.  In 2015 the buyers of the home fulfilled the terms of the land contract and title transferred.  In 2015 the preparer reported the sale of the home, including the remaining balance of first time homebuyers credit. 

So when I amend the 2012 return it creates a reduction in tax of about $1,000 due to treating the home sale as an installment sale instead of a rental and $3,500 additional tax for the repayment of the FTHB credit (net is $2,500 owed).  Since the time to file for a refund for 2012 has expired is the $1,000 reduction in tax still available or have they lost it and owe the $3,500?

Thanks.

 

[Pacun]

How much money will you client put in his pocket if you amend all those years? You will have to amend 4 years which might cost your new client some money. If I am not mistaken, you will be sending a check with the 2012 amendment and then the client will be charged interest. and/or penalty.

I normally don't amend other's preparers work. I suggest them to go back and then I suggest them to come back next year to me and I will prepare their taxes correctly. I am usually busy and that's why I don't have time to amend.

[jklcpa]

My guess is that the IRS won't separate out the credit's adjustment and repayment from the other reduction in tax. It's all related to the same transaction and the overall change is that the taxpayer owes more money, not a change that results in a net refund.

 

[Patrick Michael]

They actually had other questions about the 2015 return and the previous preparer would not return their calls and refused to see them when they showed up at the office.  Their mother is a long time client of mine and asked I take a look.  It looks like they will have small refunds for 2013 and 2014 and a $5,000 or so refund for 2015.  There was a large capital gain on the sale of the house, but by reporting it correctly in 2012 they qualify for the a sec 121 exclusion on the entire gain.

[Patrick Michael]

Thanks Judy.  That's the direction I was going but tend to overthink these things.