TTB Chapter 6 Help

[Snaggletooth]

A little confusing, and I wonder if someone can help. Sometimes I don't read so well and sorta dense.

The situation is a taxpayer rented out his former residence and now is ready to sell it. It is important
to state that this was his ENTIRE former residence and not a PORTION of it.

Page 6-22 begins by stating the treatment depends on whether the use of the home was a PORTION
of the home, or SEPARATE from it. A paragraph describes what happens when the business/rental use
is a part of the home.

The next paragraph begins by announcing the treatment if the property is SEPARATE. But the verbage
continues to describe an allocation process as if a PORTION of the home is being used.

Knowing my tendencies to get confused reading reference material, I'm assuming I've missed the train
somewhere. Can anyone enlighten me??

[appelman]

P. 6-22 discusses effect of rental on exclusion rule for sale of a home.

It sounds to me as though your client is going to sell this as a rental. It will be a Form 4797 transaction. Basis will be lesser of his original basis or FMV at date home was converted to rental, less depreciation taken. Anybody disagree?

"It takes so much work to develop an informed opinion that it defeats the purpose of having an opinion in the first place." (Courtesy of "Dilbert.")

[Bonnie]

My intrepretation of this is that if the home being sold is your primary home and part of it was used for business purposes, like Office in a Home. Or a duplex where part was rented but part was the primary residence. IF the home being sold is not partially the taxpayers primary home, it was turned into business property when it was converted to rental use. I could be wrong but this is the way I read it.

[S T]

Agree with prior -

Section 6-22 refers to as if "home office", rent out a room -etc.

Property used partly for business or rental purposes. The
treatment of gain depends on whether the portion of the home
used for business or rental purposes is part of the home (such as
a room in the home used as a home office) or separate from the
home (such as a home office in a separate structure).

If it was a personal residence and then rented out (whole house) as a Rental -for a period of time, you would have to calculate those periods.

Period time of rental - reported on 4797 and Personal Residence Sect 121

Sandy

[Snaggletooth]

All of Nothing

For some reason, I'm still missing out big time.

I'm not talking about PART of a house, whether TTB is or not, or regardless what their captions announce. All of their discussions appear to be allocating part of a house, unless I am misunderstanding.

Family moves out into a new residence, then sells the old property a year-and-a-half later. No portion of the former house was used for Office-in-Home, duplex, upstairs apartment. Nothing. I repeat - Nothing. They rented out the WHOLE house after moving out.

Now they want to sell the former property. Thanks to the TTB, and to all respondents, but everyone seems to want to paint this as multi-use property, and it absolutely is not.

What am I missing? I must really be messed up...

[S T]

Maybe this will help - unless I am mis-understanding your post and TTB 6-22which is the Application of Exclusion Rules for "Business Use or Rental of Home" - however it is for "partial use" not when the entire property was converted to Rental.

Note: the second column on TTB 6-22 "If the home was used "partly" (I believe this would be a Home Office - or other partial Business Use - or Renting Out a Room.

If your t/p actually moved out of the Personal Residence and Converted to a Rental (entire space) for a period of time - i do not believe you would be reviewing TTB 6-22.

The property changes from a personal residence to a Rental - so based on your Post from the time your t/p moved out, held and actively rented the property - the property upon successfully being a rental, is a rental.

Your sale will be a little more complicated if you are within the time period of part Personal Residence (121) and Part Rental (4797) - based on the years occupied.

More learned posters will correct me if I have mis-spoken.


Sandy

[FEDUKE404]

WAS it a rental property?

For some reason, I'm still missing out big time.

I'm not talking about PART of a house, whether TTB is or not, or regardless what their captions announce. All of their discussions appear to be allocating part of a house, unless I am misunderstanding.

Family moves out into a new residence, then sells the old property a year-and-a-half later. No portion of the former house was used for Office-in-Home, duplex, upstairs apartment. Nothing. I repeat - Nothing. They rented out the WHOLE house after moving out.

Now they want to sell the former property. Thanks to the TTB, and to all respondents, but everyone seems to want to paint this as multi-use property, and it absolutely is not.

What am I missing? I must really be messed up...

Aside from whatever TTB does/does not say, this is obviously not a "partial" (e.g. duplex/office-in-home) issue. End of that topic!

However, the facts need to be considered as to the timing. IIRC at one time a person was allowed to "rent" a personal residence property (with certain restrictions, perhaps without considering depreciation) if the rental period was of a short-term nature and/or related to actively trying to see the structure. The most common situation was "renting" to someone in the process of buying the house, but whose loan etc had not been finalized. Again quoting from a foggy memory, I believe such income appeared as miscellaneous income in lieu of any Schedule E reporting??

If this property was indeed rented for a major portion of the aforementioned 18 months (no one has mentioned a Schedule E ?), then a reasonable person would determine the personal residence had indeed been converted to a rental property. Should that be the case, you need to wheel out depreciation issues as well as Form 4797. There may be some wiggle room (timing the main issue) to still treat the sale as that of a "personal residence," but you would need to read those guidelines extremely closely to determine if this situation meets the requirements.

As with many tax issues, a full disclosure of all pertinent facts can make a conclusion much more decisive.

FE

[Gretel]

My 5 cents. The rules for how much of the gain is excludable when selling a personal residence and the 2 year rule and 5 year rule where met but it was converted to rental property have changed some years back. Before the change only depreciation needed to be recovered, after the change the calculation of the gain needed to be prorated. I am no clue if and where to find in TTB or how exactly this is done but thought just the general information would give you a starting point.

[natiro]

Gain Exclusion

I haven't actually looked TTB, but I did look at IRC 121. According to IRC 121, you would allocate gain between qualified and non-qualified use. Non-qualified use means any period (other than the portion of any period preceding 1/1/2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer's spouse or former spouse. However, the period of nonqualified use does NOT include any portion of the 5-year period which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer's spouse.

In your case, since the rental period occured after the period of residence, it's not considered non-qualified use and so no allocation is required. You would still have gain to the extent of depreciation taken on the property while it was a rental.

As long as your client meets the rules to exclude the gain under IRC 121 (2 year ownership and use tests), then this property is NOT considered to be sale of a rental. It still meets the requirements for exclusion of gain on personal residence (except for the depreciation).

[appelman]

Correction

I misspoke in my earlier post on this topic. For depreciation and for sale AT A LOSS, basis is the lesser of original adjusted basis or FMV at date of conversion to rental. For sale AT A GAIN, basis is original adjusted basis.

[Snaggletooth]

Thanks to All

Appreciate all the response. I think I have now what I need.

Sometimes I don't say "Thank You" nearly enough...