rental tax question


J

jIM

Bought property for 60k
Put 16k of repairs into property

Property was refinanced after purchase, appraised at 130k, loan is for
90k, took out 30k cash.

Is the 30k taxable income?
 
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A

Arthur Kamlet

Bought property for 60k
Put 16k of repairs into property



OK basis is 60 + 16 = 76


Depreciable amount is the portion of the 76 allocatd to the building.
You would have a separate asset for the land, and would allocate the
rest of the 76,000 (modulo any Sec 1245 -- e.g., appliances) to land.

Property was refinanced after purchase, appraised at 130k, loan is for
90k, took out 30k cash.

Is the 30k taxable income?

Nope.


Unless you default on the loan.
 
J

John Levine

Bought property for 60k, Put 16k of repairs into property
Property was refinanced after purchase, appraised at 130k, loan is for
90k, took out 30k cash.

Is the 30k taxable income?
Only if you aren't planning to pay it back.

Regards,
John Levine, (e-mail address removed), Primary Perpetrator of "The Internet for Dummies",
Information Superhighwayman wanna-be, http://www.johnlevine.com, ex-Mayor
"More Wiener schnitzel, please", said Tom, revealingly.
 
P

Phil Marti

jIM said:
Bought property for 60k
Put 16k of repairs into property

Property was refinanced after purchase, appraised at 130k, loan is for
90k, took out 30k cash.

Is the 30k taxable income?
No, but you cannot deduct all the interest as an expense against the rental
property unless the missing $14,000 ($30,000 proceeds minus $16,000
improvements) was also used on that property rather than for other purposes.

See IRS Publications 527 and 550.
 
R

removeps-groups

OK basis is 60 + 16 = 76
Do repairs add to the basis? I thought only capital improvements add
to the basis, whereas repairs are written off right away.
Nope.

Unless you default on the loan.
Even that might not be income because of the debt forgiveness law.
Not sure if that law applies to commercial real estate property though.
 
A

Arthur Kamlet

Do repairs add to the basis? I thought only capital improvements add
to the basis, whereas repairs are written off right away.
I read into this 16,000 (on a 60,000 property) that it's more
than simple repairs. For 16,000 I assumed it went to improve
the property, but I agree, more detail might be needed.

Even that might not be income because of the debt forgiveness law.
Not sure if that law applies to commercial real estate property though.

Does not apply to business property.
 
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B

Brew1

I read into this 16,000 (on a 60,000 property) that it's more
than simple repairs.   For 16,000 I assumed it went to improve
the property, but I agree, more detail might be needed.



Does not apply to business property.
It's somewhat unclear if rental property would qualify, but debt
forgiven on real property
used in a "trade or business" can qualify for the reduction (Form
982). However, taking
the reduction will also reduce your basis. Art may be referencing the
new law, which only
applies to your primary residence.
 
R

removeps-groups

Does not apply to business property.
What if you rent a room in your primary residence, or use it as a
small office? Then the debt forgiveness only applies to the portion
of the home used for personal reasons, by square footage? So if your
home is 3000 sq feet and 500 rented out, then 500/3000 of the forgiven
debt must still be reported as income?
 
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S

Stuart Bronstein

removeps-groups@yahoo.com said:
What if you rent a room in your primary residence, or use it as a
small office? Then the debt forgiveness only applies to the
portion of the home used for personal reasons, by square footage?
So if your home is 3000 sq feet and 500 rented out, then 500/3000
of the forgiven debt must still be reported as income?
In general debt forgiveness is taxable income unless you are so broke
that the IRS won't be able to get any money out of you anyway. So if
you have to ask the question, the answer is probably not the one you
want to hear.

Stu
 

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