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Author: Foolferlove Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121602  
Subject: Converting Condo home to rental property Date: 5/8/2004 4:22 PM
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Hi all.

It is likely that in a couple of years we will move out of our condo and begin to rent it.

We have made significant improvements to the interior while we have lived here. In addition, there have been assessments by the homeownwers association for major structural repairs, as well as landscaping and pool improvements.

1) Do improvements made BEFORE the property becomes a rental property count for anything, tax-wise, when it finally does become a rental? As in, can it increase our basis in the property?

2)What about major structural repairs? It seems that typically repairs do not affect basis, and since the repairs were done before it was a rental that those costs cannot be deducted later, right?

3) Can any improvements undertaken by the condo association (such as landscaping) also be added to basis if the landscaping was done before the property was a rental property?

I'm asking because I need to know whether I should keep old receipts for the work we've done (or dig them up...not sure I've kept them). Also I have to begin to educate myself about tax implications in order to decided whether it would be better to rent or sell when we eventually move.

Thanks!
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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71768 of 121602
Subject: Re: Converting Condo home to rental property Date: 5/8/2004 6:23 PM
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I would keep the receipts as you never know when or why you sold what the tax consequences will be on real estate. Any imporvement after you bought would add to your basis and general repairs would not. When converting, your basis to depreciate will be your original cost (plus improvements) or the Fair Market Value of the condo, which ever is less.

When you sell, your basis will be your original cost, plus improvements before and after conversion, less depreciation taken. It is immaterial that the depreciation is based on a fictional value that may have no relation to your cost basis, possibly due to a lower market value at time of conversion.

I suggest you read the various IRS Publicatins regading Basis in Property, and other factors. Go to www.irs.gov and select Forms and Publications / Publications and select what you think appropriate from the list and read them on line. ed

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