Tax Benefits For Owning & Renting A Second Property
Hello,
I was wondering what the tax benefits, or liabilities, are regarding owning and renting out a condo while owning a primary residence. We have owned & lived in the condo for 1.5 years, and just bought something new, so we were able to keep the condo and rent it out. The condo is in DC, and our primary is in Maryland, if that has any impact.
Many thanks, Jack
There are several issues with your conversion. Since your condo is now "equipment for doing business" you can deduct all expenses such as interest on loans, maintenance, HOA fees and taxes. In addition you can depreciate the property and this will also be a deduction from passive income. You might want to check elsewhere on this, but I believe that your basis for depreciation is the lesser of the basis as a residence and the fair market value at the time of conversion.
Now here is where it gets interesting. You can find articles that indicate you can do a IRC 1031 tax deferred exchange (investment property tax deferred exchange rules) and use the IRC 121 (principal residence tax exclusion rules) if the property qualifies for both. At present, yours does not since you did not live in the condo for 2 of the last 5 years. If you move back in for 6 months at a later date you may qualify under IRC 121. I believe read somewhere that your condo may not qualify for a 1031 either. Again, you may want to check on this.
Regards,
Ed[ Edited by edmeyer on Date 05/18/2005 ]