Client purchased a duplex in 2006. He lives in one unit and is remodeling the other half in hopes of renting it out in 2007. For remodeling expenses incurred in 2006, I plan to add these amounts to basis once the unit is put into service in 2007. I also plan to depreciate half the purchase price of the property once placed into service. Is this strategy reasonable? I've not been able to find any tax advice or tips on duplex rentals in which the client uses one unit for their personal residence. For the 2006 tax returns, I will expense on Sch E any utilities or property taxes pertaining to the rental side of the duplex. Any other concerns or danger areas to consider?
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Treat it as 2 separate properties...
1 rental, 1 personal... and you'll be fine. Just think of them as if they were 2 separate properties. At least this will help you determine what should be done with the startup expenses (yes, I would capitlize them too)
The fun part will be which expenses are 100% rental and which are 50% rental -- e.g. 1/2 of the property taxes are likely rental; is 1/2 of the mortgage interest because of the rental too?
Bill -
Duplex allocations
Well, first you should allocate part of the purchase price to the land. Also, if the two sides are unequal in size and/or quality, a 50-50 split would not be correct.Originally posted by HoosierRoland Slugg
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