Tax Court: The Real Estate Professional

The IRS audited our clients’ 2004 through 2006 tax returns. During the 2004 tax year, our clients’ purchased a home. It was our clients’ intent to renovate the home and sell the home for a profit. For three years, our clients’ spent literally thousands of hours renovating the home. One of our client’s classified himself as a so-called real estate professional for income tax purposes. As a real estate professional, our clients’ deducted their renovating expenses against their ordinary income. Unfortunately, due to current real estate market, our clients could not sell the renovated home as planned and they ultimately made the renovated home their personal residence. Despite the fact that our clients keep logs of the time they spent renovating the home and substantiated all their applicable expenses, the IRS disallowed all of our clients’ expenses associated with renovating their home. The auditor’s finding would have generated a tax liability of $59,576 excluding all applicable penalties and interest. Our attorneys filed a petition with the United States Tax Court contesting the proposed assessment. The case was pending before the Tax Court for approximately one year, and ultimately settled after a lengthy pretrial conference just before trial. The IRS agreed not to proceed to trial in this case and conceded the entire deduction to our clients.

The results portrayed in the cases mentioned above were dependent on the facts of that particular case, and the results may differ if based on different facts. The case study and/or success stories shared herein are for informational purposes only. It is not intended to and does not constitute legal advice. For more information please call 1∙888∙TAX∙DEAL or (415) 394-7200 or complete our contact form.

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