Primary Residence to Rental Property


J

jeffreypbarber

I lived in my home for 18 years, paid 80,000 for it in 1994. It's worth about 150,000 now. My problem with taxes now is that i didn't keep up with all receipts for improvements and repairs made over the years. Where would it hurt me if i simply entered nothing for repairs and improvements? I'm sure i would not get to depreciate as much each year, but would it also affect me if I were to sell the house for 150,000 sometime down the road? Would i get stuck with paying taxes on 150,000 - 80,000 in gain? If so, can i estimate repairs and include the major upgrades without having the receipts? Thanks!
 
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A

Arthur Kamlet

I lived in my home for 18 years, paid 80,000 for it in 1994. It's worth
about 150,000 now. My problem with taxes now is that i didn't keep up
with all receipts for improvements and repairs made over the years.
Where would it hurt me if i simply entered nothing for repairs and
improvements? I'm sure i would not get to depreciate as much each year,
but would it also affect me if I were to sell the house for 150,000
sometime down the road? Would i get stuck with paying taxes on 150,000 -
80,000 in gain? If so, can i estimate repairs and include the major
upgrades without having the receipts? Thanks!

If you have lived in this home as your main home and have owned it
for at least two of the five years before sale, and have not converted
it to a rental, you can exclude up to $250,000 of gain.


But if you convert to a rental and still meet the 2 of five rules
above, you will still get an exclusion of gain, reduced because
it was a rental for part of that time (rental calculation begins
on 1/1/2009).


If you miss the two of five rules shown above, usually because you
held it too long as a rental, there is no exclusion.

Your gain upon sale of a rental property must include the depreciation
allowed or allowable, even if you never took depreciation, so it is
a good idea to take depreciation.

In your example you might find a better tax solution by selling
your home, avoiding all tax on gain if was your main home for the
two of five rules, and using the money to buy a rental property.
 
J

JoeTaxpayer

I lived in my home for 18 years, paid 80,000 for it in 1994. It's worth about 150,000 now. My problem with taxes now is that i didn't keep up with all receipts for improvements and repairs made over the years. Where would it hurt me if i simply entered nothing for repairs and improvements? I'm sure i would not get to depreciate as much each year, but would it also affect me if I were to sell the house for 150,000 sometime down the road? Would i get stuck with paying taxes on 150,000 - 80,000 in gain? If so, can i estimate repairs and include the major upgrades without having the receipts? Thanks!
What Art said. I'd only add, repair while the primary resident don't do
anything for you. For primary resident, the improvements need to be
tracked as they raise basis.
When a rental, repairs are an expense, improvements get depreciated.
 
P

Phil Marti

But if you convert to a rental and still meet the 2 of five rules
above, you will still get an exclusion of gain, reduced because
it was a rental for part of that time (rental calculation begins
on 1/1/2009).
Since OP was living in the home 1/1/2009 this reduction doesn't apply as long as he doesn't move back in after interim use as a rental. See Pub 523.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD
 
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A

Arthur Kamlet

Since OP was living in the home 1/1/2009 this reduction doesn't apply as
long as he doesn't move back in after interim use as a rental. See Pub
523.

Of course! Thanks for the catch.
 

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