Using a loss on a former personal residence that was sold ........ again !

[LCP]

What's the latest on the time needed to convert a personal residence to something else in order to use a loss when sold?

..... and is making it available for rent part of the calculation? It shouldn't be that hard to rent you say. But what if it is a nice property and the rental market is such that you really have to be choosy to make sure it is kept up properly.

Finally, might this "substance over form" situation work to our advantage in the length of rental calculation: Owner did find a renter he thought would take care of the place. The renter rented for 4-5 months and then offered to buy it on a land contract for the same monthly payment. They sold it to him and he made two payments and then squatted for 8-10 months before they could get rid of him. Apparently it is easier to squat that way rather than as a tenant who doesn't pay (any verification of that "legal" issue would also be helpful).

[Roland Slugg]

As far as I know, there is no minimum length of time someone's former personal residence must be a bona-fide rental before it can be sold and a loss on that sale recognized. However, if the time is short and/or the loss is large, it is likely to draw IRS scrutiny, resulting in a full or partial disallowance of the loss. Remember, too, that when real estate is converted from personal use to rental use, its starting basis as a rental is the lower of it's tax basis or its FMV at the time of conversion. The best way to establish FMV is with a legitimate appraisal, and I would always recommend this to a client in this situation.

If a former-residence-now-a-rental is overvalued by 50% or more, an accuracy-related penalty may apply, along with a higher interest rate an the additional tax assessed. See Code §6662(b)(3) and §6662(e)(1)(A).

[LCP]

As far as I know, there is no minimum length of time someone's former personal residence must be a bona-fide rental before it can be sold and a loss on that sale recognized. However, if the time is short and/or the loss is large, it is likely to draw IRS scrutiny, resulting in a full or partial disallowance of the loss. Remember, too, that when real estate is converted from personal use to rental use, its starting basis as a rental is the lower of it's tax basis or its FMV at the time of conversion. The best way to establish FMV is with a legitimate appraisal, and I would always recommend this to a client in this situation.

If a former-residence-now-a-rental is overvalued by 50% or more, an accuracy-related penalty may apply, along with a higher interest rate an the additional tax assessed. See Code §6662(b)(3) and §6662(e)(1)(A).

Isn't there also a distinction between the basis for depreciation when you start renting and the cost basis for calculating the gain or loss? I seem to recall that for purposes of calculating gain/loss you use the original cost less depreciation.

[LCP]

Isn't there also a distinction between the basis for depreciation when you start renting and the cost basis for calculating the gain or loss? I seem to recall that for purposes of calculating gain/loss you use the original cost less depreciation.

Example: Home cost $400k but was only worth $350k when put into service as a rental. The $350k is used as the basis for depreciation and you take $10k of depreciation over the time it is rented.

You sell it for $325k ..... what's your cost basis for calculating the loss... $390k or $340K?

[Roland Slugg]

$340k ... and the taxpayer better have a legitimate appraisal, done by a qualified and licensed appraiser, to support that $350k value. Please see my reply (dated 2/21/2013) to a similar question posted recently. Here's a link:

http://forum.thetaxbook.com/showthread.php?21595-Basis-question-and