Discussion:Schedule D or 4797

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Discussion Forum Index --> Basic Tax Questions --> Schedule D or 4797

Discussion Forum Index --> Tax Questions --> Schedule D or 4797

Oncall (talk|edits) said:

21 October 2011
Taxpayer purchased condo unit in 2005 with intent to rent. I was never rented or was it ever available for rent because of mold problem. She received 1099A in 2010. Does this get reported on Sch D or 4797. This is a $50000 loss.

Sjrcpa (talk|edits) said:

21 October 2011
I vote D since it was never used in a trade or business.

Ckenefick (talk|edits) said:

21 October 2011
I vote "D" also, although I don't like it. Maybe there's some quirk in the 1231 law that could be explored.

Marcilio (talk|edits) said:

22 October 2011
I'm wondering if this may qualify as a casualty loss under 1.165-7. Also, since the property apparently never had personal use, you may stand a good chance of having it considered a business rather than personal casualty loss. I've only handled a couple of 1099-A situations, so I don't know the ins and outs, so maybe these thoughts are just a red herring.

RoyDaleOne (talk|edits) said:

22 October 2011
My comment is look to a IRC Section 165 loss. Not sure and I have have not researched the issue.

DaveFogel (talk|edits) said:

22 October 2011
In my opinion, if you can prove that the property was purchased with the intention of renting to a tenant, then the loss is an IRC §1231 loss. Here's some research that I've posted to other discussions, but is relevant here:

In Alamo Broadcasting, Inc. v. Commissioner, 15 T.C. 534 (1950), the taxpayer claimed a $107,715.62 loss on the disposition of a diesel generator and spare parts. The taxpayer was a Texas company engaged in operating KABC radio in San Antonio, and it wanted to increase its power from 250 watts to 50,000 watts. It purchased XENT, a Mexican radio station, in order to move XENT's equipment to San Antonio to be used at KABC. After purchasing XENT and sending trucks down to Mexico to move the equipment, the President of Mexico issued a special decree forbidding export of the equipment. The Tax Court allowed the loss, stating:

"We have previously held that "used in the trade or business" means "devoted to the trade or business" and includes property purchased with a view to its future use in the business even though this purpose is later thwarted by circumstances beyond the taxpayer's control. Carter-Colton Cigar Co., 9 T. C. 219. See also Wilson Line, Inc., 8 T. C. 394; Kittredge v. Commissioner, 88 Fed. (2d) 632; Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993; Independent Brick Co., 11 B. T. A. 862."

In Carter-Colton Cigar Co. v. Commissioner, 9 T.C. 219 (1947), the taxpayer, a tobacco wholesaler, purchased a vacant lot with the intention of constructing a warehouse and store to be used as its principal place of business, but due to the depression of the 1930’s, the construction plans were abandoned, and the vacant lot was sold in 1934 at a loss. The Tax Court allowed the loss as an ordinary loss under IRC §117(a)(1) (the predecessor to IRC §1231). In Drew v. Commissioner, T.C. Memo. 1972-40, the taxpayer purchased a building anticipating that he could rent it to a company that would thereafter purchase the building, but the prospective buyer company’s finances didn’t permit it, so the taxpayer defaulted on the mortgage, and the lender foreclosed. The Tax Court allowed the loss as an IRC §1231 loss.

Ckenefick (talk|edits) said:

22 October 2011
Maybe there's some quirk in the 1231 law that could be explored.

Excellent job by DaveFogel. I'm wondering if we need more facts, however. Mold is obviously a pretty common problem, and generally, can be remediated rather quickly. What if IRS says, "Mold could have been remediated in 4-weeks and then property could have easily been held for rent thereafter, but taxpayer chose not to do this." Would this type of argument put a kibash on things? Is this type of argument even valid? That is, does "would of, could of or should of" even come into play? Or does taxpayer need only prove that (1) there was mold (2) it was never remediated [no matter the reason] (3) taxpayer intended to hold the property out for rent but (4) could not because of the mold problem.

Oncall (talk|edits) said:

23 October 2011
The mold was extensive and removal would be at a cost that the owner could not afford. The mold was there, taxpayer had no knowledge, before she purchased the property. Last year after years of litigation she and other homeowners were awarded damages but she is unable to collect. Now I am starting that this might be a case casualty loss. Thanks Dave, I have read the case and agree that because the intended use was rental.
  • there are two topics being mixed up above by the OP - the Sec. 1231 opportunities nicely recapped above (depending on actual original intent), and the mold issue which OP returns to at the end. Generally, mold issues are unlikely to qualify as a casualty loss; refer to the discussions about mold and casualty losses. You could also search on drywall, where an exception was made as explained in Rev. Proc. 2010-36.

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