Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

April 11, 2013
How much detail should I submit with my tax return?

Q: I'm filing a Schedule D and Form 8949 for an inherited property held as an investment. The property was sold in 2012 and there is a net loss after deducting the real estate commission and expenses incurred to improve the value of the house, such as new kitchen floor, refinishing the wood floors, painting exterior and interior, and the cost of staging the house. Is there a way to itemized these expenses on either Sch D or form 8949 so the IRS can understand why I am claiming a net loss? Or should I not bother to itemized the expenses? Thanks

bcoffee
San Francisco

A: Technically, you do not need to submit detailed information regarding the cost of sale or tax basis information with your return. If the IRS or FTB want to know more about these items, they will send you an inquiry, otherwise known as an audit notice. On the other hand, if you submit sufficient detail with your return, you may avoid an audit.

Explanatory information can be incorporated into your return by preparing a statement referencing the IRS Form 8949 and line reporting the sale and containing the detailed information supporting the amounts on the official form. For example, the Form 8949 would show "Sale of investment property - see attached." Prepare a supporting schedule referring to the Form 8949 and the line on which the sale is reported with the information that you want submitted with the official forms.

Most tax preparation software allows you to prepare and submit supporting schedules with your electronically filed tax return. Professional tax software allows pdf files to be transmitted with individual tax returns for the first time this year. I'm not sure if consumer versions of these programs have the same capability. If they do, this may also be an option. If you file a paper return, attach the supporting schedule behind the Form 8949 to which is pertains.

I like to err on the side of providing more information with a return containing an unusual item of loss or deduction hoping to avoid the cost of responding to an inquiry that might have been prevented.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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