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I am renting my home in the U.S. while living overseas. Working with a CPA for 2001 taxes, I filed schedule E and took a deduction on the value of the property. This year I am preparing my own taxes and I am not convinced it makes sense for me to continue taking this deduction. Why? Well, because it appears there is a downside in the case where the property is sold after 5 or more years during which I do not live in the house. In this scenario, as I understand, I will have to pay capital gains tax on the depreciated sum. So, I must weigh this possible future tax payment against the tax benefits it provides now. For the 2002 tax season, the deduction would save me $350 on my MA state return and nothing on my federal return.

I would really appreciate any comments and/or sharing of experiences to help me decide how best to handle it.


John d.
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