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Old 01-20-2014, 04:05 PM
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Reporting requirements when converting a rental property into a second home

I have a rental property which I'm now converting back to a personal residence, 2nd home. I have about $10K of suspended losses, which I know I can't do much about since the switching from a rental into personal property is not considered a fully taxable event, am I correct here? Is there a tax reporting requirement for this transaction?



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Old 01-20-2014, 10:08 PM
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Originally Posted by Txquestions View Post

#1;I have a rental property which I'm now converting back to a personal residence, 2nd home. I have about $10K of suspended losses, which I know I can't do much about since the switching from a rental into personal property is not considered a fully taxable event, am I correct here?


#2;Is there a tax reporting requirement for this transaction?

#1;even though you convert a rental property into a second home, you still need to recapture the depreciation for the time the property was rented.however, unless your capital gain on the sale of home is larger than the loss, you’d not be subject to capital gain tax liability.i mean in this case, you do not have to pay tax on recap depre as ordinary income taxed at 25% .Even if If you have a loss , the loss resulted from the sale of a personal property may not be deducted, while the loss resulted from the sale of a rental property may be used to offset other taxable income.


#2;As long as you used it a rental property before converting it to your second home, then, deducting losses on second homes with some rental varies. It is extremely common for landlords to have rental losses, especially in the first few years they own a property. Indeed, IRS statistics show that over half of the filed Sch E forms reporting rental income and expenses each year show a loss. Losing money in any business venture is never fun, but it can have tax benefits. As a general rule, you may be to deduct your losses from other income you have, such as income from a job or other investments.Unfortunately, this general rule does not apply to rental losses. Complex IRS rules may prevent you from deducting all or part of your rental losses from the other income you earn during the year, which could end up costing you thousands of dollars in extra taxes as you can’t offset against other taxable regular income. However, there are also important exceptions to the rules that were created to help small landlords and others in the real estate industry. Rental losses are always classified as "passive losses" for tax purposesUNLESS YOU ARE A R/E PRO OR A DEALER. This greatly limits your ability to deduct them because passive losses can only be used to offset passive income. They can't be deducted from income you earn from a job or investments such as stock or savings accounts. NOL is not r/e passive activity losses



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