Passive Activity Deductions
Have been recently audited regarding my Schedule E expenses on my 2004 and 2005 returns. First review came back that I did not provide signifigant evidence that I was actively looking for renters so all schedule expenses would be moved to Schedule A. I have been renovating property due to last tenants eviction and destruction of property. Have not been searching through the newspapers, but have a for rent sign in window and post signs at the universities in town. Have looked though publication # 925 and #527 and found no actual definitions stating what actively pursuring renters is deemed to be. Is this just the opinion of 1 agent, is there a rule of how long a property can be vacant? I deducted no rental income loss, just schedule E losses of travel, mortgage interst, insurance, cleaning/maintenace, repairs, supplies, taxes, utilities and depreciation items from prior years. These amounts each year were under the passive activity limits of 25,000. Please shed some light on this.
1 Answer from Attorneys
Re: Passive Activity Deductions
Just like everyone else, auditors have their own opinions on whether a deduction should be allowed or not.
From the facts you give, if you are able to show a history of the property being rented, and the intention to rent it again upon completion of the repairs, it seems that you have a strong argument that the deductions should be allowed.
Even final assessments made by an auditor can be appealed, and it is not unusual for the assessment to be overturned or reduced.
If you believe you have justification for the deduction, keep trying!
If you need assistance, let me know.
Good luck to you.
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