Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 03-02-2015, 03:54 PM
Junior Member
 
Join Date: Mar 2015
Posts: 1
"Allowed and allowable" depreciation when selling rental home

We owned another home we rented to our daughter for 4 years. After 2 years we changed it to rented not for profit as it was rented far below fair market value. For the first 2 years we used Schedule E. However, we were never able to claim a loss due to our income being higher than 150000. Therefore, our expenses were only allowed up to the amount we received in rents. This amount just covered the mortgage interest and real estate taxes. Depreciation was not allowed. Does this mean I do not have to recapture the depreciation when reporting the sale of the home in 2014 as it was not allowed and allowable for these 2 years? The same thing happened in the third year even though I followed the instructions for Rented Not for Profit. I found a section in Pub 523 page 16 under How to Figure your Taxable Gain or Loss Worksheet question 3a that states "If you have good records to show the IRS did not allow you to take that much depreciation , total the amount you were actually allowed to take." This would mean only the depreciation I will take this year would have to be recaptured. Am I correct? These returns I am referring to are all after 1997.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 03-02-2015, 09:21 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
________________________________________
We owned another home we rented to our daughter for 4 years. After 2 years we changed it to rented not for profit as it was rented far below fair market value. For the first 2 years we used Schedule E. However, we were never able to claim a loss due to our income being higher than 150000. Therefore, our expenses were only allowed up to the amount we received in rents. This amount just covered the mortgage interest and real estate taxes. Depreciation was not allowed. Does this mean I do not have to recapture the depreciation when reporting the sale of the home in 2014 as it was not allowed and allowable for these 2 years? =========>> If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. You need to report your not-for-profit rental income on Form 1040 line 21.

aslongas the second home was used as r ental pty even it was rented far below FMV, If you are completing Sch E, you must take depreciation. If you don't take depreciation, the IRS will reduce your basis anyway and you will still have the depreciation recapture. The IRS term for this is depreciation "allowed or allowable," which simply means if you are supposed to take depreciation, they reduce your basis whether you did or not.

If it is truly a rental not for profit, you can skip Sch E and report the rental income on line 21 as other income. On sch A of 10409, i mean only if you itemize deductions,You can deduct the mortgage interest and property taxes. Any additional rental expenses up can be deducted as miscellaneous itemized deductions. However you can only deduct expenses up to the amount of income, no loss is allowed.

The same thing happened in the third year even though I followed the instructions for Rented Not for Profit. I found a section in Pub 523 page 16 under How to Figure your Taxable Gain or Loss Worksheet question 3a that states "If you have good records to show the IRS did not allow you to take that much depreciation , total the amount you were actually allowed to take." This would mean only the depreciation I will take this year would have to be recaptured. Am I correct? These returns I am referring to are all after 1997.=======>>>As mentioned above.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Rool-over from "traditional after-tax 401k" to "Roth IRA" golf2000 IRA/Sep 1 09-27-2014 03:33 AM
What is the "Tax Credit for New Home Purchase" in California? TaxGuru California 0 06-09-2009 04:19 PM
IRS updates the new rules for "exclusion for forgiven home mortgage debt"! TaxGuru For 2008 0 10-21-2008 09:03 AM
70 Commonly omitted "Medical Expenses" that are allowable by the IRS TaxGuru Medical 3 04-15-2008 01:17 AM
What are IRS "Section 179 Depreciation limits for 2007"? SusanB Depreciation 2 11-29-2007 03:17 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.