"Patrick Cogan" wrote in message
>On Thursday, July 8, 2021 at 11:52:32 PM UTC-5, ira.sm...@gmail.com
>> On Thursday, July 8, 2021 at 6:07:07 PM UTC-4, Patrick Cogan wrote:
>> > John Smith (not me) earns a living with two part-time jobs. He also has
>> > been receiving rental income of $500 per month in cash each month for
>> > the past three years.
>> > He has never reported the rental income on his federal or state tax
>> > returns. He wants to make things right. What is his best course of
>> > action here? Should he fill out 1040X forms? See a tax attorney? In
>> > addition to the penalties, fines and interest, is he in more trouble?
>> > Thanks.
>> > --
>> I'm assuming that $500/month is what he receives. There should be
>> expenses as well. It's not obvious whether the rental is a net profit or
>> loss each year. While the correct response from a credentialed tax
>> professional would be that amended returns should be filed, the final
>> decision is up to the taxpayer.
>> At $6000/year of unreported gross receipts, there is no need to see a tax
>> attorney. If he chooses to file the amended returns, the penalties and
>> interest won't be exorbitant.
>> Ira Smilovitz, EA
>> Leonia, NJ
>Thank you for your responses. I could have been clearer. The roommate rents
>the room in the owner's home. Thanks.
As a practical matter, if this is just an informal relationship where the
owner is renting out a room let's say to a relative or friend and the $500
cash per month is designed to cover utilities, etc., I don't think I'd worry
about it. But if this is a formal rental arrangement and you have a lease
and you don't have a relationship with the tenant and the room is only used
for the rental etc., then I'd do a pro-ration of the square footage in the
room vs. square footage of the house and allocate a portion of house
expenses like utilities, property tax, mortgage etc. along with the actual
expenses directly attributable to the tenant (for example a dedicated phone
line or a cable TV line not used by any other room or say half the water
cost of the house if the tenant and the owner are the only occupants of the
house) and then do a dummy return to see if there is actual income here. At
$500 per month, I'm guessing that once you deduct all possible expenses
associated with the rental, it might not be worth reporting.