Disposal of ex-rental asset

[scott s.]

We had rental residential real estate that I have since converted
usage into our primary residence. While it was a rental, we
capitalized the expense of installing a new roof, and took depreciation
on it while it was a rental on our sked E. In 2011 we will be
replacing the roof, with no scrap value. Do we need to do a 4797 to
get the roof off our books, considering it is not currently a rental?
Since we converted from a rental, we have been just leaving that column
of the sked E blank. At the time there was carryover passive loss,
but that has long since been applied against passive gains on
other rentals.

scott s.
...

 

[Arthur Kamlet]

We had rental residential real estate that I have since converted
usage into our primary residence. While it was a rental, we
capitalized the expense of installing a new roof, and took depreciation
on it while it was a rental on our sked E. In 2011 we will be
replacing the roof, with no scrap value. Do we need to do a 4797 to
get the roof off our books, considering it is not currently a rental?
Since we converted from a rental, we have been just leaving that column
of the sked E blank. At the time there was carryover passive loss,
but that has long since been applied against passive gains on
other rentals.

If you still own the property but have taken it out of
rental service, stop depreciation and stop filing schedule E.

But while you still own it you have not actually disposed of it,
so you'd be a bit early to roll out the 4797.

 

[scott s.]

(e-mail address removed) (Arthur Kamlet) wrote in @reader1.panix.com:

If you still own the property but have taken it out of
rental service, stop depreciation and stop filing schedule E.

But while you still own it you have not actually disposed of it,
so you'd be a bit early to roll out the 4797.

We file Sked E for other rentals. The issue is not the entire
property, rather a roof that was installed while a rental and
is now being scrapped. The roof was placed in service in 1995
approx $6000 as 27.5 yr property but only about $200 in depreciation
was taken when converted from rental. The scrap value will be $0.

The remainder of the property (including new roof) will continue
to be used as primary residence.

scott s.
...

 

[removeps-groups]

We file Sked E for other rentals.  The issue is not the entire
property, rather a roof that was installed while a rental and
is now being scrapped.  The roof was placed in service in 1995
approx $6000 as 27.5 yr property but only about $200 in depreciation
was taken when converted from rental.  The scrap value will be $0.

From 1995 to 2010 is 15 years, so accumulated depreciation should

maybe have been 15/27.5 = $3272. How did you only deduct $200?

But I think what Art is saying is that when you sell the house, at
that time you fill out form 4797 and deal with the $200 or $3272 at
that time.

What I don't know, is if you sell the house for $300,000, how do you
allocate the sale price between the roof, the rest of the house, and
the land? After all, your capital gain on the roof will be sale price
of roof, minus cost price, minus accumulated depreciation.

Also be aware that your section 121 exclusion, which is the that lets
you make 250k or 500k of capital gain income tax free for federal
purposes, and which many states also allow will be less. Because the
home was a rental your section 121 exclusion will be less.

<Quote source="http://www.exeter1031.com/
article_changes_to_section_121.aspx">

Gain Can Not Be Excluded for Non-Qualified Use

Homeowners can no longer take the full tax free exclusion under
Section 121 when the property was held and used for non-qualified use
prior to it being held and used as a primary residence (qualified
use).

The capital gain resulting from the sale of the property will be
allocated between qualified and non-qualified use periods based upon
the amount of time the property was held and used for qualified versus
non-qualified use.

</Quote>

 

[Mark Bole]

maybe have been 15/27.5 = $3272. How did you only deduct $200?

I think he converted it to personal use many years ago, it is just now
that the roof needs replacing.


In regard to the OP, I see it as a non-deductible personal loss which
does not need to be reported anywhere.

At the time of the conversion, you assumed the adjusted basis of the
property and its components, including the roof, as personal-use assets.
There was no gain or loss on the conversion, and no depreciation to
recapture since it was all straight-line.

Now, you have disposed of the roof asset for nothing, less the adjusted
basis, giving you the non-deductible loss. Just delete it from your
depreciation worksheet.

The cost of the new roof now gets added to your basis. This is all
assuming that you replaced an entire "roof", and not just the shingles,
for example (which would tend to be more like a repair). You can search
this forum in the archives for many discussions related to new roof as a
repair vs. a capital asset.

-Mark B.

 

[scott s.]

I think he converted it to personal use many years ago, it is just
now that the roof needs replacing.


In regard to the OP, I see it as a non-deductible personal loss
which does not need to be reported anywhere.

At the time of the conversion, you assumed the adjusted basis of the
property and its components, including the roof, as personal-use
assets.
There was no gain or loss on the conversion, and no depreciation
to
recapture since it was all straight-line.

Now, you have disposed of the roof asset for nothing, less the
adjusted basis, giving you the non-deductible loss. Just delete it
from your depreciation worksheet.

The cost of the new roof now gets added to your basis. This is all
assuming that you replaced an entire "roof", and not just the
shingles, for example (which would tend to be more like a repair).
You can search this forum in the archives for many discussions
related to new roof as a repair vs. a capital asset.

Thanks Mark,
what you say makes sense. It isn't a big dollar issue, just want to
clean it up.

Also a good point on allocating future capital gain between periods of
use.

scott s.
...