Technical topics regarding tax preparation.
11-Oct-2021 12:23pm
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Taxpayer lives in a primary residence for the last 7 years. House is sold in 2021 at a loss. The loss is not deductible.
However last year the taxpayer rental the house for one year and deducted depreciation. Can the loss be deductible for a Schedule E property on the 4797 even though is was also used as a primary residence ?
11-Oct-2021 12:43pm
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What do you mean "also used as a primary"? Did he convert the home to a rental, or was he renting part of the home?
11-Oct-2021 12:45pm
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Sure, but only for the amount of loss that occurred during the period where it was a rental.
The depreciable basis for RRE converted from personal use, is the lesser of their adjusted basis or FMV at the time of conversion to rental usage (Regs. Sec. 1.168(i)-4(b))...though not clear the exact rental timeline in OP as compared to the sale ("last year" meaning 2020 only? Or RRE in both 2020 and 2021?), this should allow for the proper calculation.
11-Oct-2021 1:06pm
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Last year 2020 , the whole house not part , was converted to a rental property. The house was rented for 6 months in 2020 and 6 months in 2021. House was sold in July 2021.
11-Oct-2021 1:55pm
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12-Oct-2021 1:51pm
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You're supposed to recapture any depreciation taken or allowed in regards to the rental usage.
12-Oct-2021 6:52pm
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Basis for determining loss is lower of FMV or adjusted basis at time of conversion to rental, Reg. 1.165-9(b)(2).
12-Oct-2021 7:13pm
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There are rules about determining basis when personal-use residence is converted to renral residence. It's unusual these days for real estate to decline in value, but of course, it happens. Can you ascertain whether, e.g., the property value decline may have happened after the date of conversion?
14-Oct-2021 3:52pm
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With only 6 months rental in each year, and personal use for the rest of the year, wouldn't this fall under "vacation rental" rules?
14-Oct-2021 6:46pm
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There was no personal use of the rental house for 2020 and 2021. The first 6 months of 2020 the house was being renovated and was not occupied or rented
So the house was rented for 6 months in 2020 and for 6 months in 2021 before it was sold.
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