cmsj@ihdba.UUCP (Chris Jachcinski) (09/07/84)
I have owned and lived in a condo for the past 3 years.
Due to a change in circumstances, I will be moving out
of it soon and renting it out (already have a tenant).
My questions are:
1.) I assume that I can pro rate all of my expenses
(condo assn fees, insurance and the like) for income
tax deduction purposes for that part of the year which
it is rented out. Is this assumption correct?
2.) Can I start to depreciate the property (again on
a pro rated basis) for income tax purposes this year?
3.) What happens if, for N years, I treat the condo
as rental property, take all the tax breaks this implies
and then, for whatever reason, move back into it?
Do I have to amend my tax returns to "undo" the tax
breaks? Can I simply move back in and stop taking
the tax breaks? Something in between?
Any information or leads are greatly appreciated.
Thanks in advance.
Chris Jachcinski
AT&T Bell Labs
Naperville, IL
*!ihnp4!ihdba!cmsjrb@houxn.UUCP (09/08/84)
When converting from owner-occupied to rental, you may indeed
deduct all expenses....Condo fees, maint, repairs, taxes, etc.
For depreciation, you may deduct either "straight line" or accelerated.
When property, the maximum acceleration allowable is 25%...
Example: condo bought for $100,000....useful life 20 years
Note:(assume 0 salvage value, since condo has no associated land!)
first year depreciation =100,000/20 * 1.25=6250
2nd year =(1000000-6250)/20*1.25=5860
etc.....note that at some point this will result in LESS than S/L depreciation.
You are then allowed to "switch" and use the S/L method! (But you can't
go back!!)
An interesting situation arises if you dispose the property within 24 months
of moving....you lower your cost by the depreciation deductions taken...
which increases your taxable profit.....but if done within 24 months, it
is postponed until the sale of the NEXT house!
This is frequently used as a ploy by retiring folks, to maximize their
retirement deductions on the final sale of a large house after age 55.
You can then exempt a cumulative profit (I think around $150K now...it
changes).
If you don't dump it within 2 yrs, you have to pay capital gains on the profit
(that is selling price-cost-depreciation) when the property is sold.
Since the capital gains rate is lower than normal income rate, this is
still a good deal!
Rob Botwin
.....{utah-cs|seismo|decvax}!harpo!eagle!hogpc!houxn!rb
ATT/IS Labs (201) 577-5016 (Cornet 8-270-5016)
FJ 1B-130thisted@gargoyle.UChicago.UUCP (Ronald Thisted) (09/08/84)
Note that only buildings are depreciable property; land is not depreciable (it doesn't wear out). Since the purchase price of most real estate includes both land and buildings, you have to allocate a share of the total price to the land, and only take depreciation on the rest. If you don't, pray that you don't get audited..... Ron Thisted (...!ihnp4!gargoyle!thisted)
2141smh@aluxe.UUCP (henning) (09/08/84)
**** **** From the keys of Steve Henning, AT&T Bell Labs, Reading, PA aluxe!2141smh For information on renting your home see IRS publication 527, Rental Property. When you convert your residence to a rental property, you can begin to take depreciation on the building. You figure depreciation on the lower of the building's: 1. fair market value at the time you convert it to a rental property, or 2. the adjusted basis (original cost +/- capital additions or reductions). If the period during which you rent your residence or put it up for rent is less than 12 consecutive monthes, the IRS may apply limitation rules which disallow depreciation and maintenance expenses from exceeding rental income. However if you can show that you charged a fair rent for 12 months then you are entitled to show a loss.