Case Study 1: Rob Guerra

Rob Guerra came to me with the question: is this a legitimate business? Rob is a licensed realtor as well as a licensed Certified Public Accountant, an executive of a major corporation. From my professional work experience, I was aware that the IRS code was not clear in this matter.

I researched the specifics related to realtors and determined he met the hours worked requirement. This made a huge difference in reporting the losses he incurred in regards to the rental properties he owned and operated. As a professional, he was not limited to the $25,000 loss limitations required of investors. It was not considered passive income. because he owned rental properties, he was allowed to take depreciation.

These rental properties were acquired thru a 1031 like kind exchange. He sold an investment property he owned in California at a gain.. He took a portion of the proceeds as cash. He invested the rest. Generally speaking, this cash was to be taxed as a capital gain.

The reporting of the exchange was of major concern to the CPA. I was familiar with the basics. I researched the requirements and quickly realized that IRS is stringent in this area. I made sure that every detail was in place. This is the first 1031 to be executed by the taxpayer. because this was not a one for one exchange, I could not use the typical forms IRS suggests. Instead the CPA created a customized worksheet to be attached to the usual form. because I understand the calculations and laws related to gains, I understood that the gain would be recognized to the extent of cash received. I made sure it was reported as such.

Determining the basis of each property was a big job. He had 5 properties in all. With the exchange taken, this was very complicated. But quite significant in the outcome.

These paper losses Ire a significant contributing factor to the outcome of the return. However, another issue presented itself in this area.

Because he was also an active realtor, I made sure he was taking every expense possible. Each dollar counts for 1.25 (tax savings included) So I insisted I dig for each dollar.

In summary, the losses of over $80,000 on the rental properties and the capital gains at their lowest, created a refund of $17000. I work had to make sure my clients get as much money back as I can and that's what I do best.