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Old 03-02-2011, 11:16 AM
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Rental income question about not for profit

I have a townhome purchased in 2003 and used as our primary residence until 12/01/2009. On 01/01/2010 I converted this to a rental property. I have 2 questions about filing taxes.

First, In determining my property basis for depreciation, I am using fair market value as of 01/01/2010. Can I include my points and fees from the loan in 2003 in my basis? My assumption is no since I deducted those on our 2003 taxes.

Second question, concerns profit and loss. I am planning to claim passive income from the rental, I do actively participate in the rental activites. Also there will be a net loss so I plan to use that loss to offset our wage income. I was reading the IRS publications, and there is a sticky point I need help with. This rental property will not be profitable for many years. I was reading the not for profit aspects of the IRS pubs. I am concerned if I offset losses in each of the next 5 years the IRS will make me claim this rental as a not for profit rental. And according to the pubs the IRS could demand that retroactive for all five years. Short questionis, can I claim losses in consecutive years and offset those in each year against my wage income? Or should I start from the beginning and claim this property as a rental not for profit?



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