Accountant/Parents holding up my taxes

What is the name of your state? Kentucky/Ohio

I now live in Kentucky, but I lived in Ohio the first part of last year. My question concerns a tax accountant in Ohio and rental property that I have in Ohio.

I lived in a house in Ohio from 2001 through to 2006. I was on medical from my job at the time and was very sick. My parents took advantage of my illness and since they were co-owners of the house, they decided that they were going to claim the house on their taxes as rental property even though I was making all of the payments. I went along with it because I was just too sick to do otherwise and didn't even bother to look into what my rights were and so forth. Well, I'm much better now and back to work. I bought my current Kentucky home and we put the other house up for rent. I went to a new accountant here in Kentucky. She wanted to claim my half of the house for 2006 (I had requested an extension in April and am just now doing my taxes) for me. This prompted a conversation that detailed my rights and the need for the formula used thus far to calculate the depreciation used for my parents taxes since 2001. I, therefore, asked my parents for this information. They will not give me it. I then tried to contact the previous Ohio accountant to get it or have her amend my 2004 taxes claiming my half of the house so I can find out that way. Once I have this information, I plan on amending my 2004 (if not yet done) and 2005 taxes accordingly and finsihing my 2006 taxes and getting them sent off promptly. I've called the previous accountant on numerous occassions. I have faxed her a letter, sent her a copy of the letter overnight to her house. I have left pleading messages to her, to no avail. What can I do???? She has me over a barrel. THEY have me over a barrel.

Thanks!

Explain better about the house. Thoroughly explain the ownership of the house, who was living in the house, and who was making the mortgage payments in 2004, 2005 and 2006.

However, if you and your parents co-owned a house, and you were living in the house and making the mortgage payments, then it was fraudulent for your parents to claim it as rental property.....and would not have benefited them unless they also declared a fraudulent loss.

You should have been claiming the mortgage interest and property taxes on Schedule A, as you were the one paying for those, and it was your primary residence....and that is how you should have been doing it all along.

Explaining better...

Okay, what happened was that I got extremely ill back in 2001. I had to leave my condo in Kentucky and move back to the city in Ohio that I grew up in so that others might be able to assist me when I needed it. Yah, like that ever happened. At any rate, there was a house across the street from my parent's house that was a foreclosure. A slum landlord was eyeing the place to add to her collection of slums. Since my parents did not want this to happen and I needed a place, we threw our extra money together and bought the place. I lived there exclusively and we intended one day to rent the place out once I was well enough to return to work and live in Kentucky. I lived in the house, however from about 2002 (maybe 2001, not quite sure) until July of 2006. I made the house payments exclusively the whole while I lived there. My parents did, however, make a few improvements to the place with their money.

My new accoutant here in Kentucky told me that in order for me to claim the house that I would need to know what depreciation schedule was used from 2002 up until now so that we could use the same calculations. If what you are telling me is fact, then I would not need to know this at all and would just claim it all just as anyone owning a house would and not as a rental. As for the period of time of August, 2006 through to the end of December, 2006, we'd use whatever schedule my accountant wanted to use and I'd merely claim 1/2. We could set the schedule since it would be the first time that it SHOULD have been set. The prior times are fraudulent and can be disregarded.

In light of all of this, I would venture to say that I am totally in my rights to do this and my parents are most likely going to be audited now, right? What is the worst that could happen to them, do you suppose? Yes, they were being greedy, but I'm guessing they had the assurances of our accountant (my former accountant). My Father is 78 years and has numerous heart attacks and my Mother is 72 and just a despicable human being. Also, I'm guessing that my former accountant really screwed up and God only knows what is going to happen to her. What do you suppose will happen to her? I'm now thinking this is the reason why she is avoiding me like the plague.

Also, I WAS told, however, by my new accountant that if the house sells and my parents depreciated things along the way (and I didn't), that I would still yet be presented with a 1099 or something like that and have to give back the depreciation since it is most likely before things were completely depreciated, if that makes any sense? I might not have all my facts right here. It is a bit over my head. The longest they have depreciated anything is probably 4 years and I believe the least number of years you can depreciate things is for 10 years, right? Still yet, I haven't a clue what formula was used...10 years, 27.5 years, whatever. I tried asking my new accountant how I can be made responsible to pay that back when I never benefited by it, but she had no answer for that.

Oh, and another thing...yes, they claimed a loss on their taxes each year. Now my parents are saying they are through dealing with it now that I am pressuring them. They said that they don't need good credit any more now that they are old and will just let it go to foreclosure. They won't even try to rent the place out and they live right across the street from the place. They want me to handle it 350 miles away. I can't see where they have a right to do this. I told them that I found the first tenants and now it is their turn to find the second tenants. Rent it while we are trying to sell it. My Dad won't because he doesn't want the new carpet ruined....what the "bleep" kinda sense does that make since more money has been paid out in these last 4 months paying the mortgage directly without the help of a tenant than the carpeting is even worth. Sorry, a bit off subject but it does tell you what I am dealing with, doesn't it?

Thanks again!

Hopefully the old accountant has insurance. In his defence, your parents may not have given him all the facts.

Did you pay the mortgage and taxes directly out of your account, or did you give the money to your parents for them to pay it? It makes a difference in how they perceived the matter.

They are incorrect in having claimed the property as a rental when one of the owners was living on the property.

The worst, they owe the government some money when they get audited for 3 years. (no, not a typo). There is only a certain amount of time that the IRS can go back and review your taxes, unless you were involved in fraudulent behavior. If they say that they made a mistake, they'll just owe the money back. Hopefully the accountant has insurance that pays the penalty. Your parents will owe the interest since they've had access to the money.

1. I agree with everyone else who has stated that your parents should not have declared the house a rental. However, that is not your concern.

2. For past years, you are entitled to claim the mortgage interest & taxes on your personal return, since you were obligated to & did pay them. Be sure you have proof of this, as the IRS will likely start with the proposition that you are incorrect since your parents filed first. Do you actually have enough income that itemizing saves you significant money?

3. Since the house was rented in 2006, you'll split the rental income & joint expenses 50-50; & each will claim separate expenses on their own Schedule E and/or Schedule A.

4. Upon sale, you will get half the proceeds & selling expenses, and will have to reclaim your share of the depreciation claimed since it was turned into a bona fide rental. Your parents overclaimed depreciation, so they will have to reclaim all depreciation they deducted since 2001. You have absolutely no obligation to recapture any of the $10,000 or so depreciation fraudulently claimed on their return. BTW, recapturing depreciation means adding that money into your income for the year of sale, as ordinary income, not as capital gains.

5. Since you jointly purchased the property, your basis is half the purchase price. Your parents can add the improvements they made to their basis/depreciation calculations. This will result in you showing more capital gains than they, but less depreciation recapture. Be sure you keep excellent records, since the chance of them helping you with an audit is not good, given their health & attitude towards you.

6. Quit whining about the hassles of being an absentee landlord. Your co-owners have absolutely no obligation to act as the rental agents just because they are close. There is no legal requiement that the closest owner act as landlord, nor that co-owners have to take turns finding renters. (You should have written this all out when you bought the place.) Given their health & age, it may simply be too much for them. And don't give me 'they were fine last year' -- you know health can delcine quickly.

Drive back and get the house listed for sale with a real estate agent. If the market is slow, hire a professional management company to find & deal with tenants. If your parents resist hiring a management company, get a real estate lawyer to file a lawsuit asking a judge to either force a 'partition by sale,' or force them to agree to a management company & tenants, or to make them reimburse you for the lost rent caused by them refusing to let tenants live there.

Do not let the place go into foreclosure. This will damage your credit rating permanently.

I would like to add that its very likely that the new accountant misunderstood you to mean that the house was a rental all along, when it was not. The new accountant probably did not understand that you were the one actually occupying the house and paying for the mortgage and taxes, up until August of 2006.

Thank you

I wanted to thank you all for your advice and allowing me to vent a little. It seems I am learning all sorts of stuff right now. I've since made an appointment with my new Accountant and she is amending my 2004 and 2005 taxes along with claiming the house for 2006 fully for the time that I lived there and 50% for the time that it was rented out to someone. I told her that my Father had threatened to try and cause problems for me at my place of employment (still have the voice mail) and she told me that in the post 9/11 era that this could be deemed as a terroristic threat. Again, this is venting and sharing NOT whining...there is a difference. I suppose to someone that doesn't know my (our) whole story, it might appear to be whining.

Again, thanks all! It would have been far more difficult for me to figure out all of this on my own being that I am a lay person. What a great site!!!

Tax issues and beyond...

Well, the drama continues...

I went ahead and had my taxes for 2006 done without having heard back from my previous Ohio Accountant at that point. We did it as if I lived in the house in 2006 for 7 months and solely paid all the bills as an owner of the property and then for the remaining 5 months, I claimed half the rent monies received since this is how it all actually happened. We chose the depreciation schedule that I wanted to use as opposed to trying to determine the depreciation schedule that my parents had used when they used it fraudulently. My new Accountant and I figured that since it should not have been claimed as a rental by my parents up to that point, then there was no reason why we should have to adhere to the schedule that they used and should not have been using in the first place. I hope we did things right.

Now I will share with y'all the additional drama that has me stumped. It covers two arenas, tax law and real estate law (I think).

As for the Tax law, my previous Accountant finally called me back AFTER my new Accountant and I had finally finalized my 2006 taxes and sent them off to the IRS. I work nights and do not wake up until mid-afternoon. On that particular day, she had called me very early and left a voice mail message that I STILL have on my phone. I can't recall if I retrieved it that day or the next day. I just know that substantial time passed since she had left me a message. Her message was her telling me how much depreciation that my parents claimed on the property thus far which was in excess of $15,000. She stated that she was unaware of me being a co-owner of the property and that I lived there and made all the payments. She stated that if we were to sell the property, that I would most likely be treated like a silent partner and not have to pay back any of the depreciation despite it not being fully depreciated. She stated that my parents would have to pay that money back, plus interest and penalties. She told me that my 2004 taxes that I was considering having amended might net me a bit more of a refund, but my 2005 taxes most likely would not. (Note: I had asked her to amend my 2004 taxes because I thought that that would tell me what depreciation method they went by since she'd have to use the same method for me. This would then have enabled me to use that very same method when figuring my 2006 taxes which were not yet done at the time that I had asked her to amend my 2004 taxes. My current Accountant and I have since abandoned this and went ahead and used our own method of depreciation as previously mentioned. I already knew that if she'd told me directly what method she used for my parents and thereby discussing with me their private tax information that she would be violating the privacy laws.)

Also, she stated in her message to me that she was going to contact my parents in the meantime about my situation. How can she be telling me about my parents taxes and then telling my parents about my situation? Isn't that a direct violation of the privacy laws? My current Accountant said that I could easily sue her for doing this. I have not called her back since much time had transpired from the time she left her message and I had retrieved it. I may, however, still yet contact her and find out what exactly she discussed with them regarding me.

Now, for part two...

My rental became vacant back in May. Immediately after it became vacant, there was a broken pipe from bad plumbing that resulted in some damage to the property. Insurance finally made good on the claim and the place was put back together a couple of months later. I wanted to rent the place again and my Father who is the co-owner wanted to sell it. I was okay with selling it, but wanted to rent it out while it was on the market to sell. I know that it is going to take a while to sell. I do not want to have to foot the bill while the house sat their vacant. My Father refused to let me rent it because he says that he doesn't want the carpeting ruined while he is trying to sell it. I remind you, this was FREE carpeting provided as part of an insurance claim. Instead, he wants me to share the cost of paying the mortgage each and every month that the house sits there on the market waiting to sell. This is ludicrous. (Note: In the 5 months that it has been vacant and we've been paying the mortgage, we could have bought new carpeting maybe even twice over.) I told him, fine, if he wants to pay the mortgage while he tries to sell it, go for it. I, however, refused to pay any of the mortgage. He paid a couple of months and then told me that he wasn't going to pay any more and would just assume the banks foreclosed on the property. So, I have taken up making the payments and then immediately contacted a Landlord Leasing company. I live 350 miles away and it just makes more sense to have someone else handle the property.

So, about a week ago, the Landlord Leasing company sent someone out to the house to get pictures for their website for advertising purposes. They told me that my Father, who lived across the street from the property, approached them and told them that he owns the property and is selling it. They returned to their office and contacted a government office to learn for sure that I also owned the property. Of course I did and my contract with them was then legal. They went ahead and published the house on their website. A couple days later, my sister calls me and tells me that my Dad has had two offers on the house for much less than what it is worth. She claims that she doesn't know the amounts of the offers because she is trying to stay out of it. I told her that I wasn't letting it go for less than it was worth. I told her that I was going to rent it out. She told me that since I owned the house with my Father that I couldn't do that without his permission. Is this true? Can he refuse to pay on the place and then prevent me from renting it out. Can he be allowed to destroy my credit like that? I can not pay on that place solely AND handle my own home here in Kentucky. During my last conversation with my Mother maybe just a couple of months ago, she told me that she and my Father are old and no longer need good credit; therefore, they don't care if the banks foreclose on it. Help!!!!

Marsha

Actually, either one of you can rent it out. Also, he can't make you sell (for less than you want) unless he goes to court & gets an order of partition by sale. If he is determined to unload the place ASAP, tell him that your share of the sale has to be at least $xxx,xxx, & if he wants to sell at fire sale prices, you still get your full share & he can have the remainder.

Also, since this partnership is going downhill rapidly, I strongly suggest you start communicating with mom & dad in writing so there is no dispute as to what exactly was said & decided. This is especially true if you are going to make a bargain sale and split the proceeds unevenly. That type of agreement needs to be in writing & signed & notarized by all owners.

Thanks and another question...

Thanks so much, Abezon, for your informative response. I do plan on putting everything in writing from this point forward.

Just since my most recent posting the other day, my Sister has informed me that my Father is agreeable to quit-claiming on the house. He has supposedly already contacted the lender who supposedly told him that they can do that, but that I would have to refinance the property. I've never heard of this. I don't know why they would require this. The property is worth twice what we owe on it currently. I've since tried contacting the lender myself and, unfortunately, their computers are down. The young woman told me that they would have to be able to view our loan on the computer before she could tell me if I could just assume the entire loan and my Father could quit-claim on it. Should this be the case, I was wondering how difficult it is for someone to quit-claim on a property. Can anyone shed some light on the subject???

Thanks!

Marsha

mcmarsha67 said:

Thanks so much, Abezon, for your informative response. I do plan on putting everything in writing from this point forward.

Just since my most recent posting the other day, my Sister has informed me that my Father is agreeable to quit-claiming on the house. He has supposedly already contacted the lender who supposedly told him that they can do that, but that I would have to refinance the property. I've never heard of this. I don't know why they would require this. The property is worth twice what we owe on it currently. I've since tried contacting the lender myself and, unfortunately, their computers are down. The young woman told me that they would have to be able to view our loan on the computer before she could tell me if I could just assume the entire loan and my Father could quit-claim on it. Should this be the case, I was wondering how difficult it is for someone to quit-claim on a property. Can anyone shed some light on the subject???

Thanks!

Click to expand...

Its actually very easy. The quit claim would be signed as part of the closing on the refinance, transferring full ownership to you. This is very common when people divorce and one of them keeps the house.

You really ought to refinance for enough to pay out your parent's share of the equity. That would be the proper way to handle it.

However, if you can get the home sold in a reasonable amount of time, it would save money in the long run. With closing cost for two sales (the refinance and when you finally sell the home) you are going to be spending extra money. It also would be very difficult to find a renter who would be willing to rent "until the house sold"...because that could happen in one month, or 1 year.

You might want to consider lowering the asking price to make a quick sale, since you have significant equity in the home.