Condo deduction?


R

Rick

My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
 
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A

Arthur Kamlet

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
You can always deduct property taxes and mortgage interest
on your main home and one second home even if you allow your
daughter to live there.

If this is a rental property, and you expect to treat it as
a rental, you have to charge her fair market rental in order
to be allowed deductions in excess of income.

Calling it investment property is somewhat misleading.
Better to think of it as your second home or as rental
property for which you charge fair market rental.

And if this is a rental, you had best claim depreciation
expense because you will have to recapture it (add it to
your gain) when you sell.

If you and your spouse wish to give her cash gifts so she
can make some of those payments, there's no tax forms to
file if the gifts total less than $12,000/person/year.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
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H

Herb Smith

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
You currently have a "second or vacation home", not a
rental. If this is your only such property, your deductions
are limited to mortgage interest and property taxes and,
possibly, your homeowners fees. Depreciation is NOT
deductible unless you rent the property, and then only to
the extent of net rental income.
 
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P

Paul Thomas

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
The property tax and mortgage interest are deductible as a
second home on Schedule A.

You don't have a rrental activity yet because you don't have
a profit motive.

And you can't take rental losses with "self-dealing", like
renting it to your daughter, who, if not a dependent, would
still be a related party.
 
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P

Phil Marti

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes?
At the moment it's a second home. You can deduct mortgage
interest within the limits on Schedule A. See Pub 936. You
can deduct real estate taxes on Schedule A on any number of
properties.

Depreciation is a deduction with respect to income property,
which this is not. Condo fees, utilities, maintenance, etc.
are nondeductible personal expenses.
Would anything change if we charged our daughter rent?
Yes. It changes in different ways depending on whether
you're charing market rent. See Pub 527.
 
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B

Bill

(e-mail address removed) (Rick) posted:
My wife and I recently purchased a
condominium in another city as investment
property. Our long-term plan is to use it as
rental property, but we are currently allowing
our daughter to live there rent-free while she
attends college in that city.
Since it is investment property and not our
primary home, can we deduct depreciation,
the condo homeowners association fee and/or
our monthly mortgage interest on our taxes?
Would anything change if we charged our
daughter rent?
For the initial period, (while you're allowing your daughter
to use the property as a "dorm"), you would have the option
of considering it as a "second home" or "vacation" property.
This would allow you to deduct the interest and taxes --
along with those of your principal residence -- on Schedule
A. Late, you could "convert" it to a rental property. (Just
an option.)

Pub 17 has a pretty good discussion of the general subject
in Chapter 9, "Rental Income and Expenses." But you should
also obtain Pub 527, "Residential Rental Property."

You would be on shaky ground if you attempted to classify
the property as a "Rental investment" during the period your
daughter is using it, unless you actually charged her rent
at a level commensurate with comparable properties in the
area -- which is why I started with the suggestion for the
option of temporarily treating it as a "second home," being
occupied by a member of your family.

Once you list the property for rent and properly establish
it as a rental unit, you can then deduct all of the items
you listed as usual and normal expenses for maintaining the
property and depreciating your investment. Schedule E would
then be used, plus Form 4562 to establish depreciation.

Bill
 
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Mark Bole

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
If it is an investment, you need to have a profit motive.
Right now, you are giving (as in, gift) the monthly
market-value rent to your daughter -- you and your wife
together can give up to $24,000 a year to an individual
without filing a gift tax return. You can deduct property
tax (on all properties) and qualified home mortgage interest
on a second home on your Schedule A.

If/when you put the property into service for profit, you
can deduct all related expenses including depreciation and
HOA dues, but you will also be expected to show income
comparable to the market rental rate. Then it will all go
on Schedule E.

-Mark Bole
 
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M

Missy

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
You would have to charge your daughter fair market rent in
order to deduct anything...

Missy Doyle
 
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J

joetaxpayer

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
From what you describe, you should treat it as a second
home, a student dependent living in it lead me to suggest
that. You could deduct the property tax and mortgage
interest, as for a second home, and convert to rental usage
when you actually rent it out.

If you choose to charge her rent, it must be 'market based'
rent. You cant charge her $200 when the going rate is $1200.
In that case (charging full rent) you'll take all expenses
as deductions, including condo fee, but you'll also take the
full rent as income. You would likely be better off sticking
the first option, unless the condo fee is unusually high.

JoeTaxpayer.com
 
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R

Robert Daniels

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
When you rent to a relative at below-market prices, the
vacation home rules [Tax Code Sec. 280A] kick in. You can
deduct mortgage interest and property taxes on Schedule A
[if you have another vacation home, you must chose which one
to deduct]. Other out of pocket expenses and depreciation
can be deducted only to the extent the property generates
income net of interest and taxes -- which isn't the case as
long as your daughter lives there rent-free. See IRS
Publication 527 for details.

Bob Daniels
 
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B

Bill Brown

Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.

That would make it personal use property.
Since it is investment property and not our primary home, can
we deduct depreciation, the condo homeowners association fee
and/or our monthly mortgage interest on our taxes? Would
anything change if we charged our daughter rent?
It isn't investment property. It is personal use property.
Mortgage interest may be deductible on Schedule A if you can
show that the condo is your second home. Real estate taxes
are deductible on Schedule A.

If you charged your daughter the fair rental value you would
have taxable income and, perhaps, some deductions for
depreciation, repairs, etc. The deductibility of rental
losses is limited you might not get any net tax benefit.
Your daughter would be out-of-pocket for the rent (or you
would, if you gifted her money to make her rent payments).
 
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M

Mark Bole

Mark said:
Rick said:
My wife and I recently purchased a condominium in another city
as investment property. Our long-term plan is to use it as
rental property, but we are currently allowing our daughter to
live there rent-free while she attends college in that city.
[...]
If it is an investment, you need to have a profit motive.
Right now, you are giving (as in, gift) the monthly
market-value rent to your daughter -- you and your wife
together can give up to $24,000 a year to an individual
without filing a gift tax return. [...]
This got me thinking about gifts vs. support. Checking the
archives of this esteemed group led me to posted discussions
about legal obligation to pay, economic condition of the
recipient, who makes the payment to whom, "strings
attached", and so on. I even found one comment from year
2002 that makes me really want to see a citation of some
kind, because I am skeptical:

"I don't know about other states, but in California people
are also required by statute to support their adult children
and parents when in need." [end quote]

So, is my answer above in error? Would provision of a
rent-free apartment to a child who is a full time student be
considered support rather than a gift? What if the child
sub-let the apartment at market rate, and used the payments
to pay for living somewhere else (such as her friend's
place?)

Does it depend on whether the child is a qualifying child
(QC) or qualifying other (QO)? Isn't it really pretty
arbitrary, in this situation, to determine whether or not
over half of support was provided? (You could always call
some of the support a gift until you got to less than 50%,
right?)

Is there a good resource on the topic of determining gifts
vs. support?

-Mark Bole
 
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