Can I override in Turbo Tax? I received the CalHFA ADU taxable grant for 40k. Agency said to override 7k (fees paid for escrow account). I didn’t know and need to amend.

[lauramari_s]

I’m not sure what I can do or if turbo tax live would help with this.

[Mike9241]

overrides can be done but then you have to mail in the return. 

[lauramari_s]

To do an override, can it be done through the online version? 

[Opus 17]

Overrides can only be done using the desktop program, and tax returns with overrides can't be e-filed.  Also, the accuracy guarantee may not cover you.

However, if you received $40K grant, let's first really unpack why you think part of the grant is not taxable.  Normally, funds are taxable to you even if they are paid to an escrow account for your future benefit.  And if you do need to adjust the taxable amount, there is a better way that doesn't require an override and does allow you to e-file.

Let's first figure out if you really have a valid reason for part of the grant to be non-taxable. 

[lauramari_s]

That’s a good question. I’ll have to clarify with the agency. They just told me that my tax professional could override 7k and that is the exact amount of fees that are not usable. Here is the description of fees from the site: 

When approved, you will receive an award of $35,500. The HPP CARES and La Mesa Fund Control fee is $4,500. The $2,500 holdback is used to pay a licensed professional to get the project back on track if the homeowners choose an unethical licensed professional.

[Opus 17]

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@lauramari_s wrote:

That’s a good question. I’ll have to clarify with the agency. They just told me that my tax professional could override 7k and that is the exact amount of fees that are not usable. Here is the description of fees from the site: 

When approved, you will receive an award of $35,500. The HPP CARES and La Mesa Fund Control fee is $4,500. The $2,500 holdback is used to pay a licensed professional to get the project back on track if the homeowners choose an unethical licensed professional.

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I'm not seeing $40,000.  If the grant is $40,000, and there is a $4500 admin fee and an $2500 holdback, that means $33,000 to you and not $35,500.

What happens to the holdback if your project goes smoothly and you don't need an "ethical contractor to get the project back on track"?

[lauramari_s]

I think it goes for the HUD inspection. I’m going to get some clarification. Thank you! Your questions help me! 

Under a required webinar for the grant I saw this: 

Some of the grant will go to apparently unavoidable admin costs when you work with HPP CARES (~2500 for HPP CARES, ~2500 "holdback" for HUD inspections, and ~2k for the escrow

[Opus 17]

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@lauramari_s wrote:

I think it goes for the HUD inspection. I’m going to get some clarification. Thank you! Your questions help me! 

Under a required webinar for the grant I saw this: 

Some of the grant will go to apparently unavoidable admin costs when you work with HPP CARES (~2500 for HPP CARES, ~2500 "holdback" for HUD inspections, and ~2k for the escrow

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Any money that benefits you is going to be taxable to you even if it doesn't pass through your hands.   A mandatory fee that is taken off the top is probably not taxable to you, but if money is held back to pay for an inspection, applications fees, or other costs that you would have been required to pay for your ADU project anyway, then that should be considered taxable to you.  I can't find out enough about the program to tell you what part might be excludable, I think you need more information about the costs and what is being paid on your behalf.

Once you determine the excludable amount, you can make an adjustment in any version of Turbotax without overriding.  After entering the 1099-MISC, go back to Other Income and enter an item of other income in a negative dollar amount to offset the income.  Use a description like "excludable mandatory fees".

[lauramari_s]

That makes sense. I’m going to get some clarification from HHP Cares especially with the hold back, but I definitely want to err on the side of caution. I don’t want to have bigger problems down the line. 
Thank you so much! 

[Opus 17]

@lauramari_s 

Read here

https://www.hppcares.org/adu/adu-grant-old.php

and here

https://hppcares.org/adu/adu-grant.php

I believe the entire $40k is taxable to you.  

The web site is a bit confusing, at one point they say their fee is $2500, but at another point they say their fees are $650 and $1350 and there is a $2500 holdback.  In either case, the entire award is taxable to you.  The holdback comes back to you in the end, either to pay a substitute contractor or to pay down your bank loan if there is money left over at the end of the grant.  If you paid a $2000 or $2500 application fee to a regular lender, that would not be deductible or excludable from income, so it's not excludable now.

Separately, HPPCares claims that since they are a 501c3, the $2500 or $2000 application fee is a tax-deductible donation their charity.  I am somewhat dubious about this because you if you make a donation, you have to reduce it by the value of the goods or services you receive, and since they talk about how other grantmakers charge $7000 closing costs and they only charge $2500, I  don't think you can really count the $2500 as a donation that exceeded the value of services you received.  (I find it a bit odd that they would be bragging about their business ethics in home improvement, but seemingly get this aspect of charitable donations completely wrong.  But I digress.)

In any event, from what I can tell of the program, the entire $40,000 is taxable to you.  The deductions either directly benefit you, or would be things you would have had to pay for separately.

[lauramari_s]

They are sending me a donation letter! Which I thought was strange because I wasn’t sure I donated anything. I’m just going to stick with my original returns and not amend. That was my gut instinct and you helped explain it very well to me. Thank you so much for your help. 

[Opus 17]

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@lauramari_s wrote:

They are sending me a donation letter! Which I thought was strange because I wasn’t sure I donated anything. I’m just going to stick with my original returns and not amend. That was my gut instinct and you helped explain it very well to me. Thank you so much for your help. 

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Because you got a benefit that seems to be worth equal or more than the $2000 or $2500 you paid, I don't think it's an allowable deduction.  But that's just my opinion.  I don't know if they are bending the rules deliberately or from ignorance, or they have a tax lawyer who told them it was ok. 

[lauramari_s]

Thank you for your honest opinion. I’m curious what the donation letter will say. I sure have lots of questions.