Has anyone considered the aggregation election for rental properties? If your client has multiple rentals and some are profitable while others show losses, electing to aggregate them as a single business for QBI purposes might be beneficial. This way, you're properly reporting everything on Form 8995, but the losses and profits offset each other. The requirements for aggregation are in Reg. 1.199A-4, and you need to meet the 50% common ownership test, plus at least 2 of the 3 factors (similar businesses, shared resources, or interdependence). For many clients with multiple rentals in the same area, this might be a viable approach.

I've been following this discussion with great interest as I've encountered similar dilemmas with my rental property clients. One approach I've found helpful is creating a clear decision matrix for each client that documents the factors supporting Section 162 trade or business status. For each rental property, I evaluate: (1) hours per week spent on management activities, (2) whether they use a management company or handle operations directly, (3) frequency of tenant interactions, (4) involvement in maintenance and repairs, and (5) marketing efforts for vacant units. I document this analysis in the client file regardless of whether I ultimately include the activity on Form 8995. What's helped me sleep better at night is being consistent in my application of these criteria across all clients. If the facts support Section 162 treatment, I include the activity on Form 8995 whether it shows a profit or loss. The tax code doesn't give us the luxury of cherry-picking only profitable QBI activities. That said, I do make sure clients understand the impact on their current-year QBI deduction when rental losses are involved. Sometimes we discuss strategies like timing of repairs or equipment purchases to help manage the overall QBI picture across multiple business activities.

One thing nobody mentioned yet - if your property has decreased in value when you convert it back to rental use, and you use the lower FMV as your new depreciation basis, you're essentially "losing" some deductions you could have taken if the value hadn't dropped. It feels unfair but that's how the tax code works. Happened to me during the housing crash years ago.

Dont forget to look at suspended losses too! If u had passive losses u couldnt use when it was a rental before, those carry forward and u can use them when its a rental again if u have enough passive income or qualify for the real estate professional exception. my accountant found like $7k in suspended losses we could finally use!

Wait, I'm confused about land vs building depreciation. My understanding is you can only depreciate the building portion of your property, not the land. How do you calculate this split if you've made improvements?

One additional consideration that hasn't been mentioned yet - don't forget about Section 179 deduction and bonus depreciation for some of your rental property improvements! While most structural improvements to rental property need to be depreciated over 27.5 years as discussed, certain types of property improvements might qualify for accelerated depreciation. Things like security systems, some appliances, and certain non-structural improvements might qualify for immediate expensing under Section 179 or bonus depreciation. For example, if you're installing new appliances as part of your bathroom renovation, those might be eligible for immediate deduction rather than the 27.5-year schedule. The rules can be complex, but it's worth exploring since it could provide significant tax benefits in the year you make the improvements. Also, if you're doing substantial renovations that involve any accessibility improvements, there may be additional tax credits available beyond just the depreciation benefits. Always worth checking with a tax professional to make sure you're maximizing all available deductions and credits for your rental property investments!

Another option - file a complaint with your state's consumer protection agency. I did this when my preparer messed up my home office deduction and it was pretty effective. They contacted the preparer and suddenly they were willing to cover the penalties I had to pay. Also keep all your documentation showing you provided them with the missing 1099! That's your proof they had access to everything they needed to file correctly.

I went through something very similar last year and it was incredibly frustrating. One thing that helped me was documenting everything - save all your original documents, correspondence with the preparer, and the IRS notice. This creates a clear timeline showing their error. You mentioned they want to charge you another fee to fix their mistake - that's a huge red flag. A reputable preparer should fix their own errors for free. I'd definitely recommend filing complaints with both the IRS (Form 14157) and your state's consumer protection agency. Also, for future reference, always ask preparers about their errors and omissions insurance before hiring them. Good preparers carry this specifically to cover situations like yours. And consider getting a second opinion on complex returns - even a basic review by another professional can catch mistakes before filing. The "client is ultimately responsible" line is technically true, but it doesn't absolve them of professional negligence when they fail to include documents you provided. Keep pushing back and don't let them off the hook for their oversight.

Has anyone used TurboTax or H&R Block for filing estate tax returns? I'm wondering if the software can handle Form 1041 or if I should just hire a professional.

I went through this exact situation when my mother passed away last year. Based on what you've described, you'll definitely need to file Form 1041 since the estate had income from the house sale and the CD interest that exceeded $600. A few important points to remember: 1. The house sale will likely qualify for stepped-up basis, meaning the estate's "cost" for tax purposes is the fair market value on the date of your dad's death, not what he originally paid. This could significantly reduce or eliminate the taxable gain. 2. Make sure to get a professional appraisal of the house as of the date of death if you don't already have one - you'll need this to establish the stepped-up basis. 3. The estate's first tax year can end on December 31st of the year of death, or you can choose a fiscal year ending up to 12 months after the date of death. This gives you flexibility on when the first return is due. 4. Don't forget that if you distribute any income to beneficiaries during the tax year, you'll need to prepare Schedule K-1s for them. The good news is that with the stepped-up basis, you may owe very little or no tax on the house sale. I'd recommend consulting with a CPA who has estate experience, especially for the first year - the peace of mind is worth it.