With my youngest graduating college in May, I made the leap and moved across country for a new job. In California now and loving it. Highly recommend the new chapter approach to the true empty nest.
Now for my question–I’m renting out my primary residence since October 2016. In trying to determine how to claim rental expenses. I originally added all the days I lived in the home as “personal use of house” which then determined that"vacation home rules" would apply. But reading further according to TaxAct—
“If you converted a primary residence to rental property during 2016 (or vice versa), only personal usage while the unit is a rental is applicable. If you did not use this property for personal purposes at any time during 2016 WHILE it was a rental unit, you should not enter any days of personal use above.” So I thought okay no personal days, as I didn’t live in the house at all WHILE it was rented.
I just wasn’t sure if this was right, so I reviewed the IRS Publication 527
"Property Changed to Rental Use
If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use.
You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes.
Hoping someone with expertise or similar experience can shed some light. Many many thanks!
100% of the time ask a CPA, because if you make a mistake on your tax return and do it year after year and you get audited you will not enjoy the penalties and fines.
In a similar vein, most home mortgages for our personal homes have a clause that bank can require full payment of the balance if the home converts to a rental. It is a safeguard banks put in to prevent unscrupulous borrowers from claiming a rental property is intended for one’s own personal residence. Rental loans are generally higher interest, and more money down is usually required.
It is a clause rarely used, but it exists in many mortgage contracts. Not asking if OP has a mortgage, that’s none of my biz, just tossing this out there.
One thing to consider is capital gains. The standard is living in the home two of the last five years when you sell it to avoid (or minimize) capital gains. Of course this only matters if you don’t intend to return to the home.
Himom is right about that, well done!
Yes, if one has a rental home then generally the owner insures only “the shell” and no contents, at least unless owner is providing it furnished. In my homes, where the tenant furnishes his own w/d, frig, etc., I do not insure contents.
Hopefully I’m not hijacking the thread, but I have a side question. Do any of you rent a room with your empty nest space? If it is still your primary residence, what tax implications (if any) should be considered?
I’d consult a CPA and insurance broker to see what I was getting myself in to before going that route. You really want to be sure you do things correctly so you don’t have tons of amended tax returns and possible penalties and late fees. A good CPA should be able to answer this quickly and give you info about any depreciation you can take as well. They usually charge a r a Donald hourly rate.