Rental property torn down to build TP main home..

[hac42]

How do I handle the Rental? TP has had the rental for the past few years and in 2013 tore down the rental and built herself a new home. How do I handle the rental depreciation?

I don't know why people drop this on us the last week of tax season...

Thank you for any help.

[hac42]

To add to this, the house has been a rental from 1988. It is almost fully depreciated.
I have looked on the IRS website, Pub. 544 and multiple Publications trying to find some guidance here.

I'm thinking to just convert it to personal use as of Feb. 2013 when she had it torn down.

[ddoshan]

That's a good one .... one would think there would have to be something to be dealt with as far as the rental. Had to be worth something at the time.
I also have no idea why folks stop by and or drop off garbage at this time of the year. Have had more than a few myself and would like to just tell them to !!!!!!!!! But I just take another pill and push on.

[Burke]

To add to this, the house has been a rental from 1988. It is almost fully depreciated.
I have looked on the IRS website, Pub. 544 and multiple Publications trying to find some guidance here.

I'm thinking to just convert it to personal use as of Feb. 2013 when she had it torn down.

That is correct. Nothing to do until such time as it is sold. Then all that depr has to come into play. So log it somewhere so that happens. I guess you could show it "disposed of" with no calculation of gain or loss. I had to do that with one this year. Then just attach that worksheet.

[taxea]

I would add a note to the return perhaps on the TP address line as a reminder of the date the rental ceased. Will be of a big help when the property sells. You could include in the note any pertinent info you may need at sale.

[Burke]

PS: The demolition costs are added to the basis in the new home.

[hac42]

Thanks Burke. I didn't even think about the cost of the Demo.

Thanks for the help, I did do the dispostion on it with 0 for sale price.

[Burke]

Didn't that produce a loss?

[Roland Slugg]

When real estate is razed, the loss (i.e. basis), along with the demolition costs, must be capitalized and added to the basis if the land. (Code §280B(1) and (2))

[FEDUKE404]

Been there, almost done that

I actually have been working (extension) through one of those.

Rental bought in 1995, rented for 12+ years, razed/rebuilt in 2009 + converted to personal (primary residence) use, then sold in 2013.

All kinds of things to consider, to include accurate purchase information, lots of depreciation (pre/post '97, AMT), some remodeling prior to 2009, energy credits to impact basis, and the list goes on. It's fairly simple to understand the process of what's involved, but a real mess to work through all of the historical stuff even when I have (most of) it somewhere on file.

What has me scratching my head, to be resolved before October 15th, is that with what I think was a reasonably accurate trip through the facts, AND including the depreciation issues, when all was finished there was a net loss of the personal type. (I'm still trying to rationalize sale of a former Sch E asset that eventually became a personal asset. But I DID stop the depreciation clock in 2009 and maintained those numbers until the 2013 sale.) Other than a line item on Form 8949, no 2013 income tax impact. I was expecting the client to be destroyed with >$50k of depreciation used. My only concern is the accuracy of the "costs" for the 2009 rebuild that my client provided. But I have asked the usual questions, mainly structural/built-in components that remained, and received an affirmative answer.

Depending on your software, there are some nice worksheets to take you through the maze. Also, some time ago when I knew this problem "was developing," there was a lengthy discussion on these boards about the topic. You may want to try to find it.

Good luck. I will be monitoring this thread onward. It's reassuring to see folks citing a situation that I thought could not be correct!

FE