Bob Henderson, a single man, worked full time as a mortgage broker in 2011 and 2012, both as an independent contractor and as an employee, and earned in excess of $160,000 each year brokering real estate mortgages and other loans secured by real estate. Bob was also a licensed real estate agent, but he did not operate, develop, redevelop, construct, reconstruct, or rent real estate in brokering mortgages or originating loans. Bob did, however, manage and maintain various properties owned by himself and family members. Services that Bob provided for the properties included placing ads, processing applications, inspecting conditions, and overseeing repairs and remodels, but he did not keep contemporaneous records of the hours spent.

On his 2011 and 2012 tax returns that Bob prepared himself, he claimed rental real estate loss deductions of $63,000 and $59,000 respectively for the rental properties. Bob has just been audited by the IRS and they have disallowed the losses.  He has come to you for advice regarding the situation.

Prepare (1.) a Tax Research Memorandum in good form, and (2.) a client letter in good form for the  tax research scenario.

 

Answer rating: 100% (QA)

Introduction Bob Henderson a mortgage broker and licensed real estate agent claimed significant rental real estate loss deductions on his 2011 and 2012 tax returns for properties he managed and mainta... View the full answer