Hi everyone, I need advice. I’m being audited for my 2023 tax return. The IRS wants proof for my education credit and the info on my schedule C. In 2023, I had a rental property, and it was reported under schedule C instead of a 1065. Then in 2024, I filed the 1065 for 2023 but didn’t amend my 1040.
I’ve spoken to two CPAs who gave me different advice:
Amend the 1040 to remove schedule C, add the K1, and send the education credit documents along with a letter explaining the changes.
Don’t amend—just send receipts to prove the repair expenses and education credit.
I’m not sure what the best move is. What do you all think?
I’d say amend. A 1065 is for partnerships, but rentals usually go on a schedule E. If you were providing extra services like food or cleaning (like a vacation rental), then schedule C might be fine. If you have a K-1 from the 1065, you’d need to amend the 1040 to include it. Do you have a partnership? If so, who’s your partner?
If it’s a partnership, you should amend the return, remove schedule C, and include the two K-1s. But why did you set it up as a partnership with your wife?
@Vero
I’m worried that if I amend 2023, they might ask me to amend previous years too. I’ve lost receipts for older repairs, so I wouldn’t be able to provide proof.
Kai said: @Vero
I’m worried that if I amend 2023, they might ask me to amend previous years too. I’ve lost receipts for older repairs, so I wouldn’t be able to provide proof.
The taxes might not change much except for reducing self-employment taxes. But it’s important to report it correctly. If you were my client, I’d suggest amending to include the K-1. Also, keep proof of expenses until five years after selling the property.
@Vero
Thanks. My preparer suggests sending receipts as-is for the schedule C and avoiding amendments for now. We sold the property this year, which is how this mess came up. I’m feeling stuck and unsure.
Vero said: @Kai
It’s tricky. You can send what they ask for, but if they know about the 1065, they might expect the K-1.
Thanks. One more thing—some receipts were for $15k worth of kitchen cabinets, a boiler, and new flooring. I reported all of it in 2023. Should it have been depreciated instead?
Vero said: @Kai
Yes, those should be depreciated. Your accountant would need the purchase date, amount, and details for each item.
My accountant depreciated the property for $13k but reported the $15k under repairs. He said it was fine because the property itself was depreciated. Is this wrong? What will the IRS do with those receipts?
@Kai
If the IRS sees those as improvements rather than repairs, they’ll probably require you to depreciate them. Repairs are expenses you can deduct fully in one year, but big upgrades like those count as capital improvements. You might face adjustments.