I got married last year and my wife was living in a condo she owns in Michigan and has since moved to my condo in New York. As of April of last year she is renting the condo to a friend of hers.I’ve briefly seen a couple posts here (and tried to do a small amount of Google searching) that talk about some things we need to be doing (or should have already done) with regards to this condo.The biggest thing I’m really confused about is the whole depreciation aspect and what types of things we need to do for record-keeping for when she eventually sells the condo (the hope is that in a couple years her friend will be able to buy it from her).She’s renting the condo for a loss (as in, we’re taking in only about half of what the mortgage/condo fees are) so I know we don’t need to worry about recording rental income. And sadly, from my understanding we can’t even deduct the rental loss because our combined income is over $150k. :(So my main inquiry to you guys is what stuff do we need to do right now? From what I’ve read, it appears we need to hire an Appraiser to get an appraisal done on the condo (yes we’re a year late at this point) to obtain what the value is of it at the time it was converted from a home to a rental? Is that correct?She bought it back in April 2007. And moved out of it end of Feb 2013, but only officially was rented as of April 1st, 2013.Is there any other record-keeping stuff we need to do right now?Appreciate all the help you guys could give us about this regarding all the important tax stuffs.-Eric- Confused New Rental Property Owner by Marriage :)
You do need to record the rental income even if you are renting at a loss. The losses will be carried over until the property is sold or you start showing a profit on the rental. Has the property appreciated since she bought it and Feb 2013 when she moved out? zillow.com may help with establishing if it has appreciated. I am not certain if they estimates for condos. Their estimates are only estimates, but a reasonable place to start. It may also give you the purchase price, the date of purchase, and recent sales in the area. If the property has appreciated then the purchase price is used for the depreciation schedule. If the property has lost value, then you need to work on establishing the cost basis for when it became a rental. Land is not depreciated. Since this is a condo, the land portion of the value may be low. Have you considered getting professional help for the first year?
I do know that it has depreciated quite a bit since she bought it. I'd have to get the exact details from her at some point, but I know she bought it at somewhere around $175k and last year (especially after Detroit went bankrupt) Zillow showed it around $150k or less around April. According to Zillow it's back up to almost $170k right now, but I doubt it'd actually appraise anywhere near that high.I am having a coworker friend of mine who also prepares taxes as an additional job doing our taxes this year (especially since my wife has W-2's from 3 different states because she lived the first 2 months at the condo in MI, then moved to her parents in NJ until the wedding, and then moved to me in NY in August) since they are so complicated. His preparing our taxes is part of his wedding gift to me. :)So I don't believe there's really anything major I can do right now for the preparing of this years taxes. I know we can't take any sort of deduction for the rental property, but I'm assuming he'll be recording the loss (rent minus mortgage interest & condo assoc fees) somewhere on the return itself. So I'm mostly trying to figure out what we need to do going forward, since the hope is that sometime in the next 2-3 years her friend who is renting the condo from her might hopefully be able to eventually buy it from her.And your statement of establishing the cost basis for when it became a rental is the main thing I'm trying to figure out. It's already a year later. Is there any acceptable way for determining that amount now? Or do we just have to pay for an appraisal right now and use that as our cost basis?
I know we can't take any sort of deduction for the rental property,...I am pretty sure you have to depreciate the property. The gov't will assume you do so and go to recapture it even if you don't. No doubt someone will correct me if I am wrong. I always thought that was a strange one.In fact, even though it's such a good deal, the IRS actually requires you to claim it, whether or not you want to....The real reason to claim depreciation is that the IRS will charge you recapture tax as if you depreciated your property, whether or not you actually did.http://homeguides.sfgate.com/tax-implications-not-charging-d...IP
At the rent you're collecting, I'd begin to question if you have a profit motive. Without a profit motive, you've got a hobby - or in this case a second residence.If that were the case, you'd report all of your rents collected on line 21, and claim the interest and property taxes on schedule A. If by some miracle the rents collected were larger than the interest and property taxes, you could claim any other expenses related to the house (insurance, repairs, homeowner's association dues) as miscellaneous itemized deductions to offset the rest of the rent collected.So I have to ask - why are you renting the condo? Why not just sell it and move on with your life? It doesn't sound like it is a very good investment at all.--Peter
So I don't believe there's really anything major I can do right now for the preparing of this years taxes. I know we can't take any sort of deduction for the rental property, Collect your documentation: Condo fees, property taxes, repairs relavant to the rental Mortage information Travel expenses - Have you needed to go to the condo since your wife moved out? Check with your tax person on what you should document if you do need to go to the property. Cost basis: Try to find comparable sales at the time of conversion to rental property. Check zillow and see if they list sales in the complex or comparable properties that are close around the time that the property became a rental. Sites for local agents may show a history of sales. Do you pay real estate taxes directly to the county? Are they based on current value of the property? If they are based on the current value, what value was used for the 2013 property taxes? I'm assuming he'll be recording the loss (rent minus mortgage interest & condo assoc fees) somewhere on the return itself. Including the depreciation will carry over until the property is sold or it starts to show a profit.
As far as renting at a loss, if you are charging something akin to the going market rate rent for similar properties, then it doesn't matter if you are losing on the rent. It is what it is and is a legit loss/deduction.
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