rental or investment?

[Possi]

Hey,

My client purchased a home in 2007 to fix up and sell. It did not sell.

He took it off the market in Feb 08 and it is now rented.

My question is this:

He spend megga bucks fixing the place up. That will go into the basis in 08 as rental property.

Where can I take the interest and taxes paid?

He also took out a personal loan to fix up the house. Interest deduction?

Thanks!

[Koss]

Interest and Taxes

If you treat it as an property held for investment, then the real estate tax can go on Schedule A, assuming he is itemizing. The interest could also go on Schedule A as investment interest. There is a special form for investment interest, but it flows to Schedule A.

You could also the interest and real estate tax on Schedule E. But the asset wasn't placed in service as a rental property until 2008, so you can't take any depreciation in 2007.

Your software may not understand this and freak out on you LOL

[Possi]

indeed it might!

...freak out, that is.

Thanks Burton. It was my thought to put it on the A as well.

He has lots of utilities expenses while fixing the place up. I believe this will wait for 08 and be added to the basis when depreciation begins. Tell me if I'm wrong, please!

He did a great job with the house, by the way. I made a point of going to his open house when I was invited last year. I like to get into my client's business as much as I can, to identify with them. That will get harder as my client base this year is jumping from 270 to about 330.

I'm posting another question in a minute, so don't go far!

~possi

[WD Kebschull]

Another Possible Option

Check our section 163(h)(4)(A)(iii) of the Internal Revenue Code. It appears that any mortgage interest under the circumstances described could possibly be that for a "qualified residence" on Schedule A. It could be a much deal than investment interest on Schedule A.

Cheers,

WDK

[Possi]

thanks

Thank you for pointing that out.