Ask Tax Dad: Overfunded 401(k), Living In My Rental Property, And More Tax Returns For Dead People

The wisdom of Tax Dad

The wisdom of Tax Dad

Usually, our staff Certified Tax Cat handles readers’ questions about taxes, but he’s currently at a Warby Parker showroom shopping for some even less fashionable glasses. Filling in for him is Laura’s dad, a retired accountant and real live independent tax preparer. Exclusively on Consumerist this spring, Tax Dad answers your questions.

In this edition of Ask Tax Dad, a reader’s own dad passed away, leaving his affairs a mess; a reader moves into his former rental property; and a reader wins at personal finance and gets money back from his 401(k).

Dear Tax Dad:

My father passed away in suddenly in May of last year; his finances and files were a mess. Shortly thereafter, I had to move my mother into an assisted living home due to Alzheimers. After that, we were forced to sell the family home. So, I, as Administrator of my father’s estate AND power-of-attorney for my mother am tasked with taking care of their taxes this year.

Here’s my problem: I know my father used part of his house as a home office. On figuring the gains from their home sale, the IRS is asking for home office depreciation claimed going all the way back to 1997. In going through his files, I was able to find his returns for 2009, 2010, and 2011 – and nothing else. Those years showed varied depreciation numbers. Obviously, I can’t ask him, and my mother is unable to give any help. I called the IRS and they said even the transcripts I can get from them do not show the detail level on form 8829 showing depreciation specifically; they only have the Schedule C which shows the roll-up of home office expenses – and even those transcripts don’t go back that far.

Is there anything else I can do to find information from tax returns that are now old enough to drive? What can one do when the information for something isn’t available? My current plan is to file with the information I do have and hope for the best. Is there any other approach? The IRS doesn’t seem to know, but I have a strange feeling their audit department will be able to find this currently-elusive information after the fact.

Thanks for any advice,

-It’s Been A Rough Year

Hi Rough: Sorry for your loss. You have a real puzzle before you. The simple way would be to build a reasonable estimate of depreciation history, based on the information you DO have. Whatever you calculate, so long as it is reasonable, should satisfy IRS, as they have stated that they have no records at all.

To begin, did your Dad do his own tax returns, or did someone else prepare them? Either way, there should be some record of assets and depreciation. Did he keep his business records on computer? If you can determine when he bought the home, how much he paid, when he started the home office, any improvements or additions he made along the way, then, using the IRS depreciation tables you could build a depreciation record.

Not having all those, you could use the records you DO have from those tax returns to estimate prior years. Perhaps you are aware of any major changes in past years, such as building an office addition, that would change the depreciation. At any rate, I would expect that IRS would accept any reasonable numbers you use, not having something better in their records.

Online IRS Publications 17, 551, and 583 may be helpful to you. Good luck.

Hi Tax Dad,

I have a property that has been a rental for quite a while. I quit renting it the end of 2011 and moved into it the first of this year and it is now my primary residence.

Do I need to make note of this change somewhere on the form when filing or just show this property as my new address and fill out the appropriate lines for a primary residence?

Thanks for your help.

Jim

Jim:

The IRS rules on this conversion are too extensive to cover here. For example, how to handle the reporting of any rental loss carryover. I would direct you to the IRS.gov website for publications on rental property.

Perhaps the most important issue to remember is that, if and when you sell the property, you may have to recapture (account for) any depreciation write-offs you enjoyed while renting the property.

Reader John writes:

In 2011, I had an excess contribution of $1800 in my employee 401k plan. I changed jobs and rolled over the 401K into my IRA with a different (brand new) firm. Thus, my 401K firm could not remove the contribution, so they sent me a corrected 1099-R for 2011 (in May or June of last year).

In 2012, before the tax deadline, my new IRA firm removed the $1800 from my IRA, but the 2012 1099-R reported the $1800 as non-taxable. They claim they are unable to give me a corrected 1099-R since I did not have an account with them in 2011.

Two part question: do I need to also attach the corrected 2011 1099-R with my 2012 return, and is a substitute 1099-R for my IRA (where I correct it and make the $1800 taxable) good enough?

Hi John:

You do not make clear if the excess contribution in question was actually pre-tax or after-tax, and perhaps therein lies the confusion, but being a 401-k, I am assuming that it was pre-tax. Therefore, if it was returned to you as excess, it would become taxable income.

Your handling of the 1099-R would depend on the coding assigned to it, such as a code 8, B, or P, and when you receive the return. It would take too long to explain here, but I can refer you to IRS pub. 525, page 10, which explains how to treat each of these codes and how to report the monies on your 2011 and/or 2012 tax returns.

Please remember that you get the advice that you pay for. Information provided by Tax Dad is a starting point, and not intended as a substitute for consulting your own real, live tax preparer or cat.

Have a question for Tax Dad about your federal or state tax returns? Send it to us at tips@consumerist.com with “ASK TAX DAD” in the subject line.

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