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Old 10-24-2017, 10:04 PM
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Personal residence / Rental / Tax ???

This occurs in AZ. I have a property that I purchased in 2007 and lived in until this summer. I currently have it on the market. However, it was bought in the bubble and will not return close to the amount of money I have in the property. I realize you can't use real estate losses of personal residence to offset income.

However, if I turn the home into a rental, is my basis of the property all of the money I have in it (purchase and upgrades), or does my basis become the FMV at the time I made it a rental? For example, if my basis is able to be $520k+/- as that is the amount I have ?invested,? then selling it at even $400k where I net $370k after commission and associated fees would leave me with a capital loss of $150k. If I can use that 150k to offset 150k of income, that would save me about $60k in taxes between state and fed. If this is the case, I need to make it a rental for some period of time that would qualify me to use my $520k as my basis. What is the amount of time that it would need to be a rental to qualify for this?

Thank you in advance for your input. And yes, I have left a message for my CPA. I am just entertaining an offer for purchase tonight that this information will greatly help decide what to do.



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Old 10-26-2017, 01:33 AM
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This occurs in AZ. I have a property that I purchased in 2007 and lived in until this summer. I currently have it on the market. However, it was bought in the bubble and will not return close to the amount of money I have in the property. I realize you can't use real estate losses of personal residence to offset income.=====>Unfortunately it is correct; The only way you can obtain a deduction if you sell your home at a loss is to convert it to a rental property before you sell it. However, your deductible loss will be limited. This is because when you convert property you held for personal use to rental use your tax basis (I mean value for tax purposes) is the lesser of the following values on the date of the conversion:
the property?s fair market value, or the property's tax basis.
?

However, if I turn the home into a rental, is my basis of the property all of the money I have in it (purchase and upgrades), or does my basis become the FMV at the time I made it a rental?======>As mentioned above, your basis is a lesser of the property?s fair market value, or
the property's tax basis.FMV is the value of $400K or your tax basis which is the property's original cost, plus the cost of any improvements you've made (but not repairs).


For example, if my basis is able to be $520k+/- as that is the amount I have ?invested,? then selling it at even $400k where I net $370k after commission and associated fees would leave me with a capital loss of $150k.==>>since you sell it for $400K , $400K is your FMV,not $370K.say for example, A purchased a home for $250K. She lived in the home for 7 years, made $50k in improvements, and then moved out. Because of the poor real estate market, she decided to rent her house instead of selling it. The home?s tax basis when she moved out was $300k. However, due to the decline in real estate values, its fair market value when she moved out was only $175k, a loss of $125k. Since it's lower than the home's basis, she must use the $175k fair market value. you can claim home selling costs aslongas you itrmize your deductions on Sch A of 1040 on your return.

If I can use that 150k to offset 150k of income, that would save me about $60k in taxes between state and fed. If this is the case, I need to make it a rental for some period of time that would qualify me to use my $520k as my basis. ===>As mentioned above.

What is the amount of time that it would need to be a rental to qualify for this?=====>you can CONVERT YOUR PRIMARY residence to a rental at any time when you are ready.



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