Conversion Question

[Gordy from NM]

My Client has 2 houses...1 that he lives in and 1 that is a rental...he has flip-flopped these homes and now lives in the former rental and rents the former home. What is the treatment of the conversion of the rental to personal? Also, does he lose the passive losses carried over to 2011 from the former rental home?

THANK YOU IN ADVANCE!

[jainen]

>>treatment of the conversion of the rental to personal<<

Well, first of all, vacation home rules do not apply (unless it was rented for less than 12 months). Adjusted basis stays the same for any appliances or other personal property as well as the real estate, which could generate recapture or gain on disposition (but not loss since it is now non-business property). Presumably there was no Section 179 on residential rental, but any listed property would have recapture since business use is now less than 50%. Suspended passive losses remain suspended until disposition or other passive income. The home will be eligible for Section 121 exclusion after two years, except for gain attributable to depreciation and non-qualified use prior to conversion. Interest on equity loans up to $100,000 are deductible now, but utilities aren't. More.