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Old 04-15-2014, 10:31 AM
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Out of pocket rent deduction, Capital gain tax.

Hi,

condo vacant in Jan and Feb, tenants moved in Mar 2013, still living there.

Tax time -
  1. Can I deduct two months of Principal, Interest, Tax and HOA? Or any of this?
  2. I pay 800 out of pocket every month to satisfy mortgage. Can I deduct this 9600 a year? As what - rental expense?
  3. I want to sell it now. I am in the 35% marginal bracket, so will be taxed 15% on gain?
  4. Can this capital gain tax be exempted I buy another property? Does it have to be investment or can it be personal also?
  5. And does it have to be higher or equal in value? If I buy cheaper property is the tax due on difference of prices, or full gain?
  6. What if I tell the IRS this is my primary residence? I do get mail there. Whats the verification procedure?


Last edited by jforex78 : 04-15-2014 at 12:09 PM.


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Old 04-16-2014, 06:38 AM
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Join Date: Oct 2010
Posts: 5,236
Quote:
Originally Posted by jforex78 View Post
Hi,

condo vacant in Jan and Feb, tenants moved in Mar 2013, still living there.

Tax time -
  1. Can I deduct two months of Principal, Interest, Tax and HOA? Or any of this?
  2. I pay 800 out of pocket every month to satisfy mortgage. Can I deduct this 9600 a year? As what - rental expense?
  3. I want to sell it now. I am in the 35% marginal bracket, so will be taxed 15% on gain?
  4. Can this capital gain tax be exempted I buy another property? Does it have to be investment or can it be personal also?
  5. And does it have to be higher or equal in value? If I buy cheaper property is the tax due on difference of prices, or full gain?
  6. What if I tell the IRS this is my primary residence? I do get mail there. Whats the verification procedure?

1.Can I deduct two months of Principal, Interest, Tax and HOA? Or any of this?========>>>it depends I guess;asalongas
The vacant condo for rental properties must be available for rent in order for expenses to be deductible.so it The property needs to be available for rent. For example, if athe condo is purchased with the intention of being a rental but repairs need to be made prior to putting the condo up for rent then the mortgage interest during this time period cannot be deducted. If two months goes by before the property is ready for rent and before the owner begins actively looking for tenants then that is two month's worth of mortgage payments that will not be deductible as interest expense on a rental activity.
2.I pay 800 out of pocket every month to satisfy mortgage. Can I deduct this 9600 a year? As what - rental expense?======>>>>>>>>>as mentioned above; however, as I assumew the whole $9.6K is deductible then it also depends; you can deduct the whole $9.6K on Sch E aslonga the condo is treated as pure rental however, if is treated as personal/rental use then the exp of $9.6K needs to be allocated ;all rental portion of exp needs to be on Sch E while personal portion of exp needs to be reported on Sch A of 1040.

3.I want to sell it now. I am in the 35% marginal bracket, so will be taxed 15% on gain?======>>>>On LTCG(as I assume that you’d have lTCG on the sale of the condo, then yes NOT 0% as you know as your tax bracket is higher than 15%; however, you must recapture the unrecap depre, NOT sec 1250 recapture, on the depre taken previously on the condo as ordinary income taxed at 25%.

4.Can this capital gain tax be exempted I buy another property? Does it have to be investment or can it be personal also? =====>>>>I guess so; Capital gains may be excluded or deferred depending on the property type. there are several ways to accomplish this, depending upon various factors such as the amount and type of capital gain that is realized.you may defer the amount of your gain by using the proceeds to buy like-kind property under the IRS' Section 1031 Rules. These rules permit you to defer any gain on the sale of certain kinds of property if they use the proceeds to purchase similar property. For example, if you sell 10 individual rental properties in the same year, you may use the proceeds to buy all or part of an apartment complex and defer paying tax on the gain because the complex is considered a similar type of property. This is called a "like-kind exchange" and must be reported on IRS Form 8824.


5.And does it have to be higher or equal in value? If I buy cheaper property is the tax due on difference of prices, or full gain?==========>>>>>>>>>>>as mentioned above; the Section 1031 Exchange requires the you to trade equally or up in value by acquiring a like-kind replacement property.you could structure the sale of your condo by carrying back the financing, which is often referred to as seller financing or a seller carryback note. I guess you can defer recapturing the unrecap depre on the condo. So even if there is any depreciation subject to recaptured at the time of the 1031 exchange just like your case,, no recapture takes place if there is no gain recognized on the exchange Seller financing is merely an installment note or promissory note where the buyer of the rental property makes periodic payments to you. Depreciation recapture taxes are due and paid in the year of sale. The capital gain taxes are partially of fully deferred over the term of the note and are taxed as principal payments are made pursuant to Section 453 of the Internal Revenue Code.

The installment sale strategy has positive and negative features like any income tax deferral strategy does. The obvious positive is that you can sell your property and defer the payment of your capital gain taxes by structuring a seller carryback note. However, the risk of buyer default on the installment sale is a considerable negative. The process to foreclose or otherwise take back the property can consume significant amounts of time and money and the business, asset or property may have been irreparably damaged during the buyer's ownership

6.What if I tell the IRS this is my primary residence? I do get mail there. Whats the verification procedure?======>>>>>>>>>>I guess it also depends on the situation; yiour capital gains tax can be a significant burden when selling an investment property. You can convert the condo into a primary residence in order to qualify for the primary residence exclusion of $250K for individuals or $500K for couples filing jointly; but you still need to recapture the r/e recapture on your return; If not, then, the sale of the condo as rental home must be reported on the your federal / state tax returns. In addition, you will also need to report some other details about the property such as depreciation taken on your federal return. State reporting requirements, and taxes, will vary among jurisdictions. The sale of your rental condo ss rental pty, is reported on f4797.If there was any rental activity in the year the property was sold, the rental income and expenses are reported on Sch E, just as it was in prior years. Only include rental income and expenses up until the date of sale on SchE. The IRS still identifies it a rental home rather than a just regular personal use primary home , capital asset.



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