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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Vacation vs residential rental business Date: 2/1/2012 4:21 PM
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Hi,
A friend asked me - if he is converting a residential rental house into a vacation rental, is there any difference in tax preparation? Or would the vacation rental still be schedule E for rental income?
Thanks,
RB
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114834 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 5:02 PM
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A friend asked me - if he is converting a residential rental house into a vacation rental, is there any difference in tax preparation? Or would the vacation rental still be schedule E for rental income?

For tax purposes there's no difference. If he plans to use the property himself at times he needs to get acquainted with those rules in Pub 527.

Phil
Rule Your Retirement Home Fool

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114835 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 5:14 PM
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Thank you sir! I'll let him know.
RB

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114836 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 7:19 PM
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If your expenses outstrip the income, does anything need to be reported? If there is no net income, why depreciate?

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114837 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 7:39 PM
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If your expenses outstrip the income, does anything need to be reported?

Yes. Among other things, the loss is deductible at some point.

If there is no net income, why depreciate?

When you sell you're subject to a recapture of depreciation allowed or allowable during the rental period. May as well get the tax benefit of it since you're going to bear the tax consequence of it whether you claim it or not.

Phil
Rule Your Retirement Home Fool

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114838 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 7:51 PM
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" If your expenses outstrip the income, does anything need to be reported? If there is no net income, why depreciate?"

Good questions. I'll be interested in the expert answers to these.

But let me take a stab at it just to see if I'm right :)

I doubt you have to report a loss, but you would want to if you can offset it against other income.

I think you are required to depreciate in any case.
You can't "save" the depreciation for a future year.
And again, if you have other income, you can offset that against the loss of this business, including the depreciation.

How'd I do? ;)
RB

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114839 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 7:53 PM
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"When you sell you're subject to a recapture of depreciation allowed or allowable during the rental period."

Then what's the point of depreciating if you have to "pay it back" later? You save now but pay later...is that the only (spurious) "benefit"?

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114840 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 7:56 PM
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Then what's the point of depreciating if you have to "pay it back" later? You save now but pay later...is that the only (spurious) "benefit"?

Because the tax code states that whether or not you actually take depreciation, the amount that should have been depreciated decreases your cost basis and is subject to recaptured depreciation.


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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114841 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 8:07 PM
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" Then what's the point of depreciating if you have to "pay it back" later? You save now but pay later...is that the only (spurious) "benefit"?

Because the tax code states that whether or not you actually take depreciation, the amount that should have been depreciated decreases your cost basis and is subject to recaptured depreciation."


Let me ask it a different way then. A regular expense, like office supplies, reduces your profit and thus your tax liability. Office supplies are never "recaptured". Those expenses won't come back to bite you some day.

But depreciation does. So depreciation does not give one the same benefit as office supplies? All it seems to do for you is to lower your tax bill temporarily now, only to raise it later.

Does this tie into the fact that with office supplies you have an actual outlay of cash, but with depreciation you don't, and will get to sell the property some day?

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114842 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 8:08 PM
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Then what's the point of depreciating if you have to "pay it back" later? You save now but pay later...is that the only (spurious) "benefit"?

Well, there is a time value to money. Deductions today that get repaid many years down the road are worth something.

Also, there's no guarantee that you can sell something for more than it's basis after depreciation. Real estate is typically the main asset that bucks this trend - but it doesn't always do so. That would be one lesson learned in the opening decade of the 21st century. And in the 1980s. And in the 1930s. And probably once or twice more that I'm not remembering at the moment.

--Peter

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114843 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 8:20 PM
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"Well, there is a time value to money. Deductions today that get repaid many years down the road are worth something."

True. And I was just trying to see if that's pretty much the main benefit. I guess I also wasn't thinking LONG term, which with real estate, it could be a long long haul.

"Also, there's no guarantee that you can sell something for more than it's basis after depreciation"

And thus you wouldn't have to recapture the depreciation (or I guess you would but it wouldn't raise your income, or taxes).
But you'd be losing money on the sale so that's not anything to hope for!

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114844 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 9:56 PM
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So depreciation does not give one the same benefit as office supplies? All it seems to do for you is to lower your tax bill temporarily now, only to raise it later.

Does this tie into the fact that with office supplies you have an actual outlay of cash, but with depreciation you don't, and will get to sell the property some day?


Possibly, but I think you're trying to apply too much logic to tax law, which can leave nasty brick marks on your forehead. I'm not an accountant, but I think that depreciation is part of the expense, so it makes sense that it would be including in calculating income. I haven't looks at an income statement in years, but IIRC they do acknowledge that it's an "unusual" expense since there's a subtotal before applying depreciation.

On the practical side, the tax rate on recapture is capped at 25% while the deduction is at your marginal rate.

Phil
Rule Your Retirement Home Fool

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114845 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 10:21 PM
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But depreciation does. So depreciation does not give one the same benefit as office supplies? All it seems to do for you is to lower your tax bill temporarily now, only to raise it later.

Let's try a little logic (not always applicable to tax code). Items which are depreciated, but no longer exist at the time of sale are not subject to recaptured depreciation. Over time rentals require maintanance: flooring, applicances, and especially areas with water require repair/replacement. Many of these items aren't deductible in the year bought, but must be depreciated over the life of the item and maybe replaced multiple times.

Only structures are depreciated. The value of the land is not depreciated. Their is an assumption that the land will appreciate enough to cover the loss of value of an older home. It doesn't always work that way.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114846 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/1/2012 10:23 PM
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On the practical side, the tax rate on recapture is capped at 25% while the deduction is at your marginal rate.

Regular income tax rate. Wouldn't other items such as AMT and Obamacare taxes could raise that tax rate?

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114847 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 6:45 AM
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A friend asked me - if he is converting a residential rental house into a vacation rental, is there any difference in tax preparation? Or would the vacation rental still be schedule E for rental income?
...
For tax purposes there's no difference. If he plans to use the property himself at times he needs to get acquainted with those rules in Pub 527.


Whoa. While I almost never disagree with Phil on taxes, a vacation rental, IF treated as a business rather than mostly personal use with a couple of weeks rental, files a schedule C. To be treated as a business, personal use must be limited to two weeks or 10% of time rented, whichever is greater, and no deductions, including depreciation, can be made for that personal use time.

Have your friend pick up this book: http://www.amazon.com/Every-Landlords-Tax-Deduction-Guide/dp... Most of it covers regular schedule E landlording, but in the version I've dissected over and over again, chapter 16 covers vacation rentals which are treated as a business rather than as a real estate investment. There are also references through out the book to VRs, and the author is great about highlighting the differences where they appear.

Good luck to your friend. There is a Yahoo group that is very active for vacation rental owners: http://groups.yahoo.com/group/vacation_rentals/ and even a board I've tried to get going here on TMF, but have been too busy lately getting my VR up an running to pay much attention to, which tends to be the death knell for a new board: http://boards.fool.com/vacation-rental-management-120055.asp...

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114848 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 6:53 AM
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If your expenses outstrip the income, does anything need to be reported? If there is no net income, why depreciate?

Because a VR is considered an active investment, rather than a passive one like conventional rentals, there is no limit to the VR loss that can offset ordinary income. Even with conventional rentals you can deduct up to $25,000 against OI, so why on earth wouldn't you depreciate? Further, and Phil is certainly the voice of authority here, IIRC you don't have the choice but to depreciate a real estate investment. When you sell, you will still be expected to recapture depreciation even if you didn't take it. Sounds bizarre, I know, which makes me doubt my understanding every time I read it, but even not being a pro I've learned that common sense is not part of the IRS strategy.

Of course, the IRS will expect to see you treating this as a business, not a hobby or a tax deduction, with the intent to make money. You need to put the work in to show that you are trying to make money or they will disallow it as a business.

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114849 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:00 AM
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Then what's the point of depreciating if you have to "pay it back" later? You save now but pay later...is that the only (spurious) "benefit"?

It depends on your tax bracket. For example, if you are realizing paper losses on a rental via depreciation, and can offset ordinary income with those losses during your high income years, say 25% tax bracket, but then sell the place when you are retired and are paying 15%, then you have a tax savings.

Phil, if one has a vacation rental or other real estate investment that is subject to depreciation, and the property gets passed down to children on death, does the depreciation slate get wiped clean with the basis adjustment, or is that just for non-investment property?

IP
not hoping to use this info any time soon ;-)

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114850 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:05 AM
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Let's try a little logic (not always applicable to tax code). Items which are depreciated, but no longer exist at the time of sale are not subject to recaptured depreciation. Over time rentals require maintanance: flooring, applicances, and especially areas with water require repair/replacement. Many of these items aren't deductible in the year bought, but must be depreciated over the life of the item and maybe replaced multiple times.

And with a vacation rental, depreciation includes appliances, wall to wall carpet and furnishings, which are depreciated over a much shorter period of time. I think things like dishes and linens are just expensed.

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114851 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:11 AM
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...IF treated as a business rather than mostly personal use with a couple of weeks rental, files a schedule C. To be treated as a business, personal use must be limited to two weeks or 10% of time rented, whichever is greater, and no deductions, including depreciation, can be made for that personal use time.

I also meant to add that time spent at the rental for work purposes, if it is cheaper to stay there than grab a hotel or return home, is not considered personal time. And the rules are fabulously in the owners favor, such that I suspect all our time at the VR will be "work" time. The book I recommended goes into how to put these work rules to your advantage, how to document your work time, and it's worth picking up the book just for that. Plus, the book cost is tax deductible. It is much cheaper at Amazon than in the bricks and mortar stores.

IP,
obviously a fan of this book

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114853 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:14 AM
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While I almost never disagree with Phil on taxes, a vacation rental, IF treated as a business rather than mostly personal use with a couple of weeks rental, files a schedule C.

I have never heard of mere short-term rental of residential property being automatically treated as a business requiring Schedule C. Pros?

Phil
Rule Your Retirement Home Fool

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114854 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:16 AM
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Phil, if one has a vacation rental or other real estate investment that is subject to depreciation, and the property gets passed down to children on death, does the depreciation slate get wiped clean with the basis adjustment, or is that just for non-investment property?

Fresh start.

Phil
Rule Your Retirement Home Fool

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114856 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:37 AM
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I have never heard of mere short-term rental of residential property being automatically treated as a business requiring Schedule C.

Just glanced through my tax bible and as usual you appear to be right. It's real estate dealers that would use C, or motels and hotels, though the criteria there seems to be additional services, like maid service, which some VRs do supply, so then where does it lie?

The ability to get feedback is one reason why I love this board! Clearly, I need to take the time to wade through this 500 page book yet again. I've been focusing more at this time on what data to collect and how to collect it for the IRS to recognize it's validity, (again throw common sense out the window and follow the rules literally if you don't want those expenses disallowed,) than what form to report on.

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114858 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:52 AM
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Because a VR is considered an active investment, rather than a passive one like conventional rentals, there is no limit to the VR loss that can offset ordinary income. Even with conventional rentals you can deduct up to $25,000 against OI, so why on earth wouldn't you depreciate?

Word of caution...this should state that a VR can be considered an active investment, but you have to pass the criteria...it's not automatic. There doesn't seem to be much that's automatic when it comes to taxes and vacation rentals. Much of how a VR is treated tax wise depends on the level of personal use and level of personal participation. Lots of "if this than that" in the tax rules rather than one size fits all.

IP

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114859 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 7:56 AM
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While I almost never disagree with Phil on taxes, a vacation rental, IF treated as a business rather than mostly personal use with a couple of weeks rental, files a schedule C.

I have never heard of mere short-term rental of residential property being automatically treated as a business requiring Schedule C. Pros?


Nor I. Not having read the book cited, I can only think of three explanations: (1) the author is mistaken, (2) the OP has misinterpreted what the author wrote, or (3) the author is basing his position on tax court decisionss that haven't made their way into IRS pubs. (I haven't done any research to locate such decisions.)

IRS Pubs 527, Residential Rental Property (ch. 3), and 334, Tax Guide for Small Businesses (ch. 5) state that in order for a rental to be considered a business activity (Sch. C), you must provide substantial services that are for your tenant's convenience (such as regular cleaning, linen service, maid service) and not just for maintenance of the property (such as utilities, trash collection). There's another catch to Sch. C reporting: any income is subject to SE tax.

Ira

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114860 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 8:39 AM
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It's real estate dealers that would use C, or motels and hotels, though the criteria there seems to be additional services, like maid service, which some VRs do supply, so then where does it lie?

As best as I can tell, in the eye of the beholder.

When I hear "vacation rental" I think of residential real estate that's rented out on a short-term basis. It's been standard in my experience that it's professionally cleaned after each rental, but there are no such services provided during the tenancy. It may or may not be "bring your own linens." Booking and rent collection may or may not be handled by an agent.

There's been some touching on the active v. passive issue in this thread. By definition residential real estate rental is a passive activity. Unless otherwise provided in the law, passive losses are deductible only against passive income. However, there's a special provision for rentals if you "actively" participate. In that case you can deduct $25,000 in loss against nonpassive income if you meet the AGI restriction ($100K?). Active participation, as described in Pub 527, isn't a terribly high bar to clear.

Finally a caution about books. I haven't read the one mentioned, but a mention about all its fabulous deduction ideas rang my "uh-oh" bell. This is, no doubt, because I was an avid follower of the Renaissance--the Tax People case. Always remember "ordinary and necessary" and your mother's advice that "if it sounds to good to be true, it is."

Phil
Rule Your Retirement Home Fool

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114861 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 8:42 AM
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...you must provide substantial services that are for your tenant's convenience (such as regular cleaning, linen service,...

Which our VR will provide.

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114862 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 8:44 AM
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...because I was an avid follower of the Renaissance--the Tax People case.

I don't understand this reference.

IP

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114863 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 9:08 AM
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I don't understand this reference [to Renaissance]

It was a Topeka-based combination MLM tax fraud scam that sent a former IRS executive I had an especially low opinion of to the slammer. Plus, they had the noive to operate out of the revered Fleming Mansion at 10th & Gage. (Topekas would understand.) Their big pitch was being able to deduct personal expenses as business expenses, and a lot of people paid a lot of penalties. Here's a link to the last story I found. The paper had a lot of articles over the years and used to have a special archive, but I couldn't find that. http://cjonline.com/news/local/2010-04-20/cooper_sentenced_t...

Phil
Rule Your Retirement Home Fool

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114875 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 2:14 PM
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If he just started renovations on the property at the end of 2011, and only spend about $900 on that, does he have to depreciate that or can he expense it for 2011?

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114877 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 2:21 PM
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"a vacation rental, IF treated as a business rather than mostly personal use with a couple of weeks rental, files a schedule C."

Whoa, really? For sure? Damn! That's a bummer. SE tax and so forth. Thanks for the heads up. I'll take a look at Amazon at that book.

I almost missed this particular post on this thread. I'm glad I went back to review the thread.

RB

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114878 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 2:24 PM
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"Because a VR is considered an active investment, rather than a passive one like conventional rentals"

What if he is just hiring a management company to manage the vacation rental for him? In fact, the same company that managed his regular rental where it was Schedule E. Since they are managing both types, how is one passive and one active?

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114879 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 2:28 PM
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"Just glanced through my tax bible and as usual you appear to be right. It's real estate dealers that would use C, or motels and hotels, though the criteria there seems to be additional services, like maid service, which some VRs do supply, so then where does it lie? "

Whoa, again! I'm working my way down the thread...

So he CAN use Sch E?

"so then where does it lie?"

Sounds grey. I think he just plans on having cleaning between customers, not during. I would tip him toward Sch E. That IS more beneficial, right? No SE tax for one thing.

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114880 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 2:35 PM
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"Word of caution...this should state that a VR can be considered an active investment, but you have to pass the criteria...it's not automatic."

What is the criteria, or where can I find that?
Thanks,
RB

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114881 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 2:43 PM
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"By definition residential real estate rental is a passive activity. Unless otherwise provided in the law, passive losses are deductible only against passive income. However, there's a special provision for rentals if you "actively" participate. In that case you can deduct $25,000 in loss against nonpassive income if you meet the AGI restriction ($100K?). Active participation, as described in Pub 527, isn't a terribly high bar to clear."

Good to know. Thanks Phil. I'm sure learning a lot of important stuff in this thread!

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114883 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 4:23 PM
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What is the criteria, or where can I find that?

It's covered in chapter 16 of that book I linked. But if your friend is intending to lose money on the property, why keep it? VRs can be very lucrative. I'm conservatively anticipating a decent return on equity and cash flow positive from year one, ignoring appreciation. Then again, I'm managing it myself, so I don't start with a 30% or so hit off of gross income right from the start.

If he has a manager, it will be tough to qualify for this as anything other than a passive investment, particularly if he has another job.

IP

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Author: RBMunkin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114884 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/2/2012 5:06 PM
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"But if your friend is intending to lose money on the property, why keep it?"

What did I say that inferred this? If I did, it was unintended or just to learn. He plans on making money.

How long is considered reasonable on breaking even with one's invested capital? Taking into account how much he's investing, and then dividing by his projected profit, he's looking at a six year break even point.

But wait, I'm not sure that's really true. If he will then own the property outright, he's made quite a profit when all the renovations and other start up costs are covered. I'll have to get more clarification on that from him.

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Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115011 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/9/2012 6:38 PM
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Rental properties are best held inside a Trust. Avoids the Passive income garbage rules of the Infernal Revenue Service <http://www.irs.gov>.

Kahuna, CFA
Venture Capital
Portfolio Manager

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115012 of 121095
Subject: Re: Vacation vs residential rental business Date: 2/9/2012 6:55 PM
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Rental properties are best held inside a Trust. Avoids the Passive income garbage rules of the Infernal Revenue Service

Just for the record, that doesn't work. Trusts are subject to the same Internal Revenue Code section 469 that individuals are. (That's the passive loss rules in case you don't care bother your lawyer daughter to look that up for you.)

--Peter

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