In Uncategorized on 05/19/2015 at 16:28

No, this is not a religious tract. No politicking or preaching on this blog. Today we discuss what it takes to convert one’s formerly personal residence to property held for production of income.

Or rather Judge Buch does, and he’s talking to Robert I. Redisch and Pamela A. Redisch, in 2015 T. C. Memo. 95, filed 5/19/15,

Rob and Pam had a FL on-the-beach condo they used in the summer, but vacated when their daughter died.

They did leave some furniture and stuff, so that the place would show decently, and hired some local brokers to rent the place before they sold it.

But no serious renters showed, and the brokers didn’t exactly slaughter themselves with their efforts to rent the place.

Finally, Rob and Pam took some business-type deductions and then sold at a loss (which they claimed was ordinary). IRS hit Rob and Pam with a SNOD.

Judge Buch takes it from there. “After concessions by both parties, the only issues remaining are whether the … property was converted to a property held for the production of income such that Schedule E deductions are allowable, whether the Redisches are entitled to an ordinary loss deduction on the sale of the … property, and whether the Redisches are liable for accuracy-related penalties under section 6662(a).” 2015 T. C. Memo. 95, at p. 7.

So let’s go down the checklist. “In the case of a converted residence, the Court often looks to five factors to determine the taxpayer’s intent: ‘(1) the length of time the house was occupied by the individual as his residence before placing it on the market for sale; (2) whether the individual permanently abandoned all further personal use of the house; (3) the character of the property (recreational or otherwise); (4) offers to rent; and (5) offers to sell.’ No one factor is determinative, and we consider all of the facts and circumstances.” 2015 T. C. Memo. 95, at pp. 9-10. (Footnotes omitted).

Rob and Pam don’t convert, on third down or otherwise.

Rob and Pam used the condo for personal use for four years before the claimed conversion. “Although Mr. Redisch testified that he signed a one-year agreement with a realty company to rent the … property, he did not provide any other evidence of such an agreement. Even if the Redisches had produced the contract, Mr. Redisch stated that the efforts of the realty company to rent out the … property were limited to featuring it in a portfolio kept in the [management] company’s office and telling prospective buyers that it was available when showing it as a model. It is unsurprising that this minimal effort yielded only minimal interest. Mr. Redisch did not testify regarding any other tactics that he attempted to employ to rent out the … property other than getting a new real estate agent. Mr. Redisch also did not provide any evidence, beyond a copy of a multiple listing service listing of the … property, of the actions taken by the second agent to rent out the home. Accordingly, we find that the Redisches did not make a bona fide attempt to rent out the … property and therefore did not convert it to one held for the production of income. Consequently, the Redisches are not entitled to deductions under section 212 or a loss deduction under section 165 relating to the … property. “ 2015 T. C. Memo. 95, at p. 11.

Rob and Pam claimed they used a paid preparer to do the returns in question, but what they told the preparer and the preparer’s credentials never make it into the record.

Looks like a substantial understatement chop is on the way.

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