Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 03-17-2012, 11:22 AM
Junior Member
 
Join Date: Mar 2012
Posts: 1
Convert rental condo to vacation home

We purchased a condo in 2001 and placed it in a rental program. Since we both are retired now, we want to be able to use it more so we want to remove it from the rental program and use it as a vacation home. We are not interested in using it as a primary residence. There is no mortgage on the condo. Our plan would be to use it as a vacation home for a while and then sell it.
What are the tax ramifications if we do this? If we do this in the middle of the year how does that affect the taxes? What if, after a year or two, we decide to place it back in the rental program? Is there an advantage to doing this before we sell it? What kind of taxes can we expect when we sell it?



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 03-20-2012, 04:29 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
“Our plan would be to use it as a vacation home for a while and then sell it.What are the tax ramifications if we do this?”---->You can take advantage of the lower long-term capital gains tax rate since you owned it for more than one year .The your LTCG tax rate’d be 15 percent(0% as long as your tax bracket is lower than 25%) in 2012, according to the IRS. After 2012, the LTCG tax rate will be 20% (10%, NOT 0%, for taxpayers in the 15% tax bracket). If you make your vacation home your primary residence for at least two of the prior five years. Then, you do NOT pay capital gains tax on the first $250,000 in capital gains if you meet this requirement, according to the IRS. You can claim an exemption of up to $500,000 of capital gains if you meet this requirement and file your taxes jointly as a couple
“ If we do this in the middle of the year how does that affect the taxes?”--->As described above as long as you owned it for more than one year, your LTCG on sale of the vacation home ‘d be subject to LTCG tax.
“ What if, after a year or two, we decide to place it back in the rental program? “---->Then, your LTCG ‘d still be LTCG and I still subject to lower LTCG up to 2012 as aid above. If you expected loss (reduced by depreciation, which is carried over in your suspended losses) on the sale( I mean you sell at a loss )then th eloss will be treated as an ordinary loss (NOT LTCL) in the year that you sell the property. That loss will be a Section 1231 loss; Section 1231 losses can be used to reduce any type of income you may have - salary, bonus, self-employment income, capital gains, you name it. you may have a net operating loss (NOL) if the Section 1231 loss is large enough to reduce your other income below zero. If so, you can carry back the NOL for at least two years and use it to offset taxable income in those years. In doing so, you can recover some or all of the taxes you paid in those previous years by amending those returns. Losses from selling a personal residence(NOT as rental pty) are not deductible. I mean if you sell your vacation home at a loss as a personal residence, then you can never deduct the loss on your return. You can only claim tax losses for sales of property used for business or investment purposes. As long as your use it as rental pty and sell it then on the sale of the vacation home as rental pty, you must recapture depreciation. However, you sell it at a loss then you do not need to recapture depr.
“Is there an advantage to doing this before we sell it? What kind of taxes can we expect when we sell it?”---->As said above, as long as you dispose of the vacation as rental pty, your L:TCG ‘d be subject to lower LTCG tax rate, 10% or 0% and ALSO you do expect a tax loss from selling a rental property , a sec 1231 loss, then reduce any type of income you may have I mean you are NOT subject to passive activity loss / at risk rule.



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



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
Convert primary to rental property /capital gains? rocketman7777 Rental Real-Estate 7 03-06-2012 08:00 PM
Convert personal to rental to personal Drew2599 Rental Real-Estate 4 08-25-2011 04:36 PM
bought a condo in March 2010(California) mmmonforte Itemized Deductions 3 02-02-2011 09:54 PM
Renting out vacation home to our S Corporation opus71 Rental Real-Estate 0 10-02-2009 07:31 PM
Entertaining clients at vacation home kgcpa Itemized Deductions 3 03-05-2008 03:01 AM

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.