tax filing without earned income.....

[MuzikLvr]

I've asked a CPA how to file taxes with no income but 2 rental properties. (I traveled full time for a year and a half when I rented one of my homes, I've now moved back into.) He said I don't have to because the rents and net profit would be less that the annual cut off limits for filing.

I'm not clear. What do I do with the 1099 from the bank, small trades gain/loss, expenses for roof, maintenance, etc. And most importantly, taxes and interest.

Rental income is passive income and not considered earned income to be taxed. Confusing and I want get answers.

Has anyone run into this?

 

[pb4uski]

I suspect your CPA is right that you probably won't need to file.

I would do a return as if I was going to file to confirm that it isn't necessary and then keep it in case they ever come asking about why you didn't file. They should probably have enough info to figure that out for themselves, but you can rest better at night knowing you have the proof if they ask.

 

[ERD50]

Well, I though this should be straightforward, but with taxes, nothing is.

First, I googled - "who needs to file" tax federal

and this is what I was looking for:

Do You Need to File a Federal Income Tax Return?

To determine if you need to file a Federal Income Tax return for 2011 answer the following questions:

Occasionally, individuals have one-time or infrequent financial transactions that may require them to file a Federal Income Tax return. Do any of the following examples apply to you?

Did you have Federal taxes withheld from your pension and wages for this tax year and wish to get a refund back?

Are you entitled to the Earned Income Tax Credit or did you receive Advance Earned Income Credit for this tax year?

Were you self-employed with earnings of more than $400.00?

Did you sell your home?

Will you owe any special tax on a qualified retirement plan (including an individual retirement account (IRA) or medical savings account (MSA)? You may owe tax if you:
Received an early distribution from a qualified plan
Made excess contributions to your IRA or MSA

Were born before July 1, 1940, and you did not take the minimum required distribution from your qualified retirement plan.

Received a distribution in the excess of $160,000 from a qualified retirement plan.

Will you owe social security and Medicare tax on tips you did not report to your employer?

Will you owe uncollected social security and Medicare or Railroad retirement (RRTA) tax on tips you reported to your employer?

Will you be subject to Alternative Minimum Tax (AMT)? (The tax law gives special treatment to some kinds of income and allows special deductions and credit for some kinds of expenses.)

Will you owe recapture tax?

Are you a church employee with income in wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security or Medicare taxes?

Do one or more of the preceding situations apply to your filing requirements?

Nothing in there about cap gains tax, dividends, interest, or foreign income? It sounds like maybe Warren Buffet doesn't even need to file? Maybe your CPA is correct, but I would think that 1099-INT,DIV and B would require you to file. But what do I know?


But of course, you can't rely on the IRS's own info, they can tell you the wrong thing and you are still liable. Nice. What do they know?

edit - I cross posted with pb4uski - that is sound advice. It shows due diligence. At least then, you don't have to make a fool of yourself like Tim Geithner, and say that you didn't know any better.

-ERD50

 

[Alan]

Good advice from PB4 and this is exactly what I would do.

Note that all income that is not tax-exempt is taxable, whether earned or otherwise.

If you are filing single, aged under 65, if your gross income is > $9,500 you must file.

Married filing Jointly, gross income >$19,000.

http://www.irs.gov/publications/p17/ch01.html#en_US_2011_publink1000170407

Gross income includes gains, but not losses, reported on Form 8949. Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.

 

[MuzikLvr]

I suspect your CPA is right that you probably won't need to file.

I would do a return as if I was going to file to confirm that it isn't necessary and then keep it in case they ever come asking about why you didn't file. They should probably have enough info to figure that out for themselves, but you can rest better at night knowing you have the proof if they ask.

I thought about that because I have expenses, I.e. roof repair, new tenant move in prep, (carpet, paint, vinyl,) etc.

Confusion #2 the homes are In 2 different states. I'll start the process with an software program and see what it looks like on paper first. I don't have any W-2s. This will be interesting.

 

[LOL!]

Just because you do not have to file does not mean that you should not file.

 

[MuzikLvr]

Good advice from PB4 and this is exactly what I would do.

Note that all income that is not tax-exempt is taxable, whether earned or otherwise.

If you are filing single, aged under 65, if your gross income is > $9,500 you must file.

Married filing Jointly, gross income >$19,000.

Publication 17 (2011), Your Federal Income Tax

I am a disable veteran 100% unemployable which means I'm medically retired via the veterans administration and my monthly compensation is not taxable. I have no other "income". I do have rents but was told its passive income and I don't use to file because that money, net, is under the $9500 limit.

 

[Alan]

I thought about that because I have expenses, I.e. roof repair, new tenant move in prep, (carpet, paint, vinyl,) etc.

Confusion #2 the homes are In 2 different states. I'll start the process with an software program and see what it looks like on paper first. I don't have any W-2s. This will be interesting.

The tax software will guide you in the right direction.

Lots of us retirees file taxes with no W-2's

If you have income coming from multiple States, as I have, you may find you also have to pay State income taxes on the income coming from that State, even if you are not resident there. (I pay LA State taxes even though I live in Texas, but I do have some income from Louisiana).

 

[Nords]

I've asked a CPA how to file taxes with no income but 2 rental properties. (I traveled full time for a year and a half when I rented one of my homes, I've now moved back into.) He said I don't have to because the rents and net profit would be less that the annual cut off limits for filing.
I'm not clear. What do I do with the 1099 from the bank, small trades gain/loss, expenses for roof, maintenance, etc. And most importantly, taxes and interest.

You would think that with the money you're paying to the CPA that they'd at least e-mail you the link or make you a copy of the flowchart of the IRS pub that helps you verify you don't have to file.

 

[pb4uski]

Essentially, the rents you received would have to exceed your expenses plus depreciation by the amount that is required to file.

Were there any withholdings made? My great-aunt's income is less than what is required to file a return but since she had some federal tax withheld from her pension she will file to get a refund.

 

[Alan]

Essentially, the rents you received would have to exceed your expenses plus depreciation by the amount that is required to file.

Were there any withholdings made? My great-aunt's income is less than what is required to file a return but since she had some federal tax withheld from her pension she will file to get a refund.

+1

You may also file to receive any tax credits that you are due. Some credits are discounted against taxes you may owe, and some are paid as cash, regardless of your taxable income.

 

[Alan]

I am a disable veteran 100% unemployable which means I'm medically retired via the veterans administration and my monthly compensation is not taxable. I have no other "income". I do have rents but was told its passive income and I don't use to file because that money, net, is under the $9500 limit.

Sounds like your CPA is correct.

Still worth checking on tax credits with that tax software, CPA's can still miss items

 

[MuzikLvr]

Didn't know that. I know what i'll be doing this weekend. Thanks.

 

[Texas Proud]

I do not know where people are getting that passive income is NOT taxable... it is taxable...



Second, it is not the net you have to deal with, but the gross... so, if you received enough rent to pass the threshold you have to file... even if your expenses and deductions will take you back down to zero...


IOW, if you had $100K in rent income and $120K in rent expense, you must file... if you are single and under 65 then that is $9,500 of total income including interest dividends and even proceeds from stock sales (which also is gross sales price, not the gain)...







Table 1.2011 Filing Requirements Chart for Most Taxpayers

IF your filing status is... AND at the end of 2011 you were...* THEN file a return if your gross income was at least...** single under 65 $9,500 65 or older $10,950 head of household under 65 $12,200 65 or older $13,650 married, filing jointly*** under 65 (both spouses) $19,000 65 or older (one spouse) $20,150 65 or older (both spouses) $21,300 married, filing separately any age $3,700 qualifying widow(er) with dependent child under 65 $15,300 65 or older $16,450

 

[Nords]

Essentially, the rents you received would have to exceed your expenses plus depreciation by the amount that is required to file.

I know that the IRS expects landlords to depreciate the rental structure, but I don't know whether that requires filing a tax return every year just to document that depreciation was taken.

 

[Chickadee]

CPA's can still miss items

+1

Happened to me in 2010.

 

[kaneohe]

I do not know where people are getting that passive income is NOT taxable... it is taxable...


and even proceeds from stock sales (which also is gross sales price, not the gain)...

TP......agree w/ your first statement.

Not sure about the 2nd..........see the footnote on p. A1 of pub 4012.
Gross income includes gains (not gross sales proceeds)
*****************************************************

"Gross income includes gains, but not losses, reported on Form 8949."

http://www.irs.gov/pub/irs-pdf/p4012.pdf

 

[MichaelB]

I'm no tax expert but think TP is right. If the gross income is above the limit one has to file. To that I would add, when in doubt, file. In matters of taxes the cost of a mistake usually is high, so unless doing the taxes is particularly difficult, do them.

 

[pb4uski]

I know that the IRS expects landlords to depreciate the rental structure, but I don't know whether that requires filing a tax return every year just to document that depreciation was taken.

Agree, (and I never suggested that).

 

[Onward]

He said I don't have to because the rents and net profit would be less that the annual cut off limits for filing.

I've done some digging, and I believe your CPA is wrong on this. The IRS definition of "gross income" includes rental receipts unadjusted by expenses. Check out Pub 501, Exemptions, Standard Deduction, and Filing Information, where "gross income" is defined:

Gross receipts from rental property are gross income. Do not deduct taxes, repairs, etc., to determine the gross income from rental property.

(That's on p. 17, column 2, paragraph 4.)

So you need to file a return if the amount of rent you collected exceeds $9500 if you're single, $19,000 if you're married, etc.

 

[kaneohe]

Onward, thanks for that link to Pub 501. I had not been aware of that one.
Your conclusion may very well be correct. However, be aware, that you possibly may be taking something out of context. Looks to me like that definition of gross income is being used in a HOH test about maximum income allowed for a qualifying relative. Sometimes (often) IRS uses different definitions for the same word , depending on context....MAGI is one that comes to mind.

I would be more comfortable seeing something about rental income in the context of having to file. I've seen something in the thread about biz income
(where cost of goods sold can be deducted from the gross revenues to produce gross income) but nothing specifically about rental income.

so again, not disputing the conclusion, just questioning the process........

 

[pb4uski]

Onward, thanks for that link to Pub 501. I had not been aware of that one.
Your conclusion may very well be correct. However, be aware, that you possibly may be taking something out of context. Looks to me like that definition of gross income is being used in a HOH test about maximum income allowed for a qualifying relative. Sometimes (often) IRS uses different definitions for the same word , depending on context....MAGI is one that comes to mind.

I would be more comfortable seeing something about rental income in the context of having to file. I've seen something in the thread about biz income
(where cost of goods sold can be deducted from the gross revenues to produce gross income) but nothing specifically about rental income.

so again, not disputing the conclusion, just questioning the process........

I had the same reservations, but ultimately decided that it was unlikely that they would use the term "gross income" in such different ways in the same publication.

The thing I am trying to get my head around is that the 1040 defines adjusted gross income as total income less certain adjustments. This suggests that total income and gross income are synonymous.

The income from a property included in total income (brought forward from Sch E to line 17 of Form 1040) is only the profit from the property (rent less expenses less depreciation).

Taken together, these suggest that only the profit from a property is included in total/gross income in the taxpayer's return.

But that is at odds with the previous post, which seemed pretty clear.

 

[pb4uski]

...CPA's can still miss items

Yeah, we should get rid of all those human CPAs and replace them with robotic CPAs.

 

[kaneohe]

pb4uski, agree it's confusing. Again, tho, I think you may be taking things out of context, not helped again by the fact that IRS using similar wording to mean different things. I think OP was discussing if he had to file so gross income is to be used in that context.

Citations in this thread have pointed clearly to Sch C using a particular line for the gross income test.......that line excludes many expenses that are used in the calculation of AGI........so in that case, gross income and AGI are clearly not synonymous. I haven't seen any specific links to a rental housing situtation to confirm what is in the gross income test.

 

[pb4uski]

To be clear, I wasn't suggesting using AGI, I was suggesting that total income (Form 1040, line 22) might be gross income. But given it isn't clear, if I were the OP I would just file a return. You can't get in much trouble if you file a return but didn't need to.