How would you do this?

[Tax Prep by Deb]

I have a client who had a rental property (house). In 2006 she rented the house for the entire year. For 2007 however the renter left and my client was not able to get a renter in the house for the remainder of the year. She is propabably not going to keep the house for 2008, as she cannot afford the payment, however the market has dropped and will not be able to sell it for what she has in it.

My question though is what to do about the two months she rented it. How do I get the depreciation to reflect only two months use? If I take full depreciation for the year she will have a huge loss, and I'm not sure if she tried very hard to rent it versus just putting it up for sale.

Any thoughts!

Deb!

[Booger]

Yes....I'm thinking about having roast beef for dinner.

Booger

[Maribeth]

If the property was available for rent for the entire year, then a full years depreciation is allowed. She may need the loss this year because she wasn't able to rent the property.

Maribeth

[Tax Prep by Deb]

I agree in theory, however I personally feel that when the tenant moved out she put the house up on the market and hoped it would sell. I know I need to ask her more questions regarding it, but lets say I'm right here and she did not try to rent it, for example advertise or list it with a property management?

How would you figure depreciation using ATX?

[Pacun]

I agree in theory, however I personally feel that when the tenant moved out she put the house up on the market and hoped it would sell. I know I need to ask her more questions regarding it, but lets say I'm right here and she did not try to rent it, for example advertise or list it with a property management?

How would you figure depreciation using ATX?

Deb, I guess you feel that your client had a rental property for 2 month in 2007 and because she decided to sell it, it became an investment property?

If your feelings are right, you will take 2 months depreciation and then she will sell the house at a loss. Since it is an investment property, she will claim a loss after she sells it.

I think you should continue using depreciation allowed or allowable. Am I wrong that if she finds a tenant willing to pay what she wants for rent, she will rent it? Has she rejected any tenants?

[jainen]

>>Am I wrong that if she finds a tenant willing to pay what she wants for rent, she will rent it? <<

It isn't wrong to think she "would" rent it, but that doesn't make it rental property. I mean, if I can find someone to rent my own shack for five grand, I would definitely sign the lease! So why can't I deduct all the maintenance and utilities and so on until then?

The market dropped and she can't find a tenant because she needs to cover a mortgage payment that is higher than competitive rents. So she took it out of service as a rental to make it easier to sell. The fact that she was still hoping for a miracle is irrelevant.

If the software can't handle it, you'll have to calculate by hand and override. But don't use two full months because real estate is mid-month convention.

[OldJack]

If the software can't handle it, you'll have to calculate by hand and override. But don't use two full months because real estate is mid-month convention.

I believe that ATX asset entry tab has a "disposition" tab of an asset the same as a sale that will then calculate your partial year depreciation automatically. Technically she would be withdrawing the asset to personal use so select "type of disposition" as "convert to personal" and there should be no gain to forward to form 4797.

[Tax Prep by Deb]

Thanks to all who replied.

I did think of using the dispositon tab to force the correct depreciation.

As always I respect all of your opinions.

Deb!

[kcjenkins]

Deb, if Jainen is right, and she did decide it would be easier to sell empty, then use the disposition tab, and take only the depreciation for the time she was trying to rent it. Which, by the way, would certainly be more than the two months she was renting it, since you said she did try to rent it after that tenant moved out. And clearly she could have been better off to rent it, even at a lower rent than her carrying costs, rather than not rent it and have to pay all of them out of her own funds.

[jainen]

>>clearly she could have been better off to rent it, even at a lower rent than her carrying costs, rather than not rent it and have to pay all of them<<

That is not at all clear, kc. A seller needs every possible advantage in a depressed market, and having an occupant is a real hindrance. It is vastly more difficult to schedule times for showing. There may be leasehold rights that can't be terminated without a fight. The tenant may fail to maintain or may even vandalize a home he is being kicked out of. The owner has no access for painting or sprucing up the place to best appearance. A renter facing eviction won't wait til the last minute, but will move at his own convenience, leaving unpaid utility bills and other headaches.

My scenario makes more sense than believing that at the very time she has it listed, nobody at all wants to live in a suitably price house that people used to want to live in.

[OldJack]

what jainen said.

[taxxcpa]

It is a big gamble. I had a house I tried to sell and had hardly any lookers and no offers. Then a couple of months ago I put it up for rent and it was rented a week later. And I had other people who wanted to rent it after I had agreed to lease it to the first one who offered to rent it.

In today's market, selling is very difficult since prices are dropping, mortgages are harder to get and foreclosures are available at depressed prices that you would have to compete with.

[Pacun]

I agree with Jainen and KC. As long as you moved it from rental property to personal property, don't take any losses on your taxes when TP sells it and pay taxes if the bank forgives any debt, you should be OK. I wonder if her sign reads "for sale or rent"?