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Recent Posts:Converting a Residence to a Rental PropertyDo you own a home that you're having problems selling in today's real estate market? Are you considering renting your home instead of selling it? If so, there are a few tax rules to consider. First, to establish the basis of the home for tax purposes, you must use the lesser of the home's purchase price or its fair market value on the date you convert it to a rental. That means, in effect, that you forever lose the tax benefit of the depreciation in your home's value that likely occurred in the past few years prior to it becoming a rental property. When you eventually sell the home, your loss will be limited to the difference between the selling price and today's fair market value. That's the bad news. The good news is that, when you do sell the home, any loss realized on the sale will be an ordinary loss (and any gain a capital gain). Losses are not recognized on the sale of a personal residence, but they are on the sale of a rental property, so converting a residence to a rental can be a good tax move. Of course, you are not permitted to rent the home for short period of time while it is on the market solely to qualify for this benefit. It must be a legitimate rental property. What if you sell the home at a gain? If you owned and lived in the home for at least two years prior to converting it to a rental property, up to $250,000 of the gain ($500,000 for married taxpayers) will be tax-free as long as you sell the property within three years of moving out. However, you must recognize gain to the extent of any depreciation deductions that you claimed while the house was a rental property. If you sell the property after that three-year mark, the full gain will be recognized as with any other rental property. Accel | 02/15/2012
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