What if i forgot to include in my tax return?

Question

Hi, i am renting home to my friend for $200 but i never get that money due to our agreement that he will spend it on fixing the house.

My question is, for three years i have been filing tax but i never showed in my tax income that i get money from my friend. The reason i didn't show is that i completely forgot about it because i never see that money. So, for some reason IRS wants me to refile last years tax income, it never happen to me before so i was confused until my friend asked me if i showed IRS that he supposedly pays me for rent. That is when my bells start ringing. So my question is what should i do now? If i refile my last years tax income what should i say about me not including for the past three years rent payments. What kind of forms should i file?

My friend told me that he kept most of the receipts on the stuff(new doors, windows, carpet ext) that he bought for the house, i don't know if that helps.

Please Help...

Answer 1

You probably have a tax loss.  You may need to find a CPA to file the return.  Report the income and related expenses on Schedule E.  Expenses will include all repairs, property taxes, and depreciation.

NOTE: prior years will require an amended return, Form 1040X, but you will have to prepare a Schedule E and probably attach a Form 1040 as originally submitted together with a Form 1040 as it should have been prepared.

You should get a refund.

Answer 2

Are you living in this home, too, or does only your friend live there?

If you don't live there, who pays the real estate taxes and insurance?  Is there a mortgage?

You probably need a tax professional to help you with this.

Answer 3

You should go to the IRS and ask "Why should I refile my last year's tax return?" to agent.  They supposed to answer to your question.

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Answer 4

To correct a prior year return you use form 1040X.  The type of income you are receiving is rental income even if your friend uses the money for repairs, and it is taxable.  The problem you will encounter is if the IRS considers the rent you are charging to be the fair market rent.  The IRS could access and require you to pay the fair market rent.  But there are a number of deductions that you can take for a rental property to lower your tax liability.  I do suggest that you contact a tax professional in your area since the forms you need are hard and confusing to complete.