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Subject Author Date
Converting Primary residence to rental property Alex M 09-08-2007
Posted by Alex M on September 8, 2007, 12:26 am
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 I need help in finding the best choice for my situation. I
am undergoing a divorce that is likely to be later finalized
this year. We lived in this house for more than 8 years and
it has appreciated more than 500K. Last December my Ex and I
decided to lease the property and we move to different
appartments.

Middle of this year we found a tenant and leased the
property.

My question is What we need to do to take advantage of 500K
gain on appreciation (250K Each) allowed and subsequently
showing the property as joint rental property. Any help will
be appreciated.

Also is there a max period before that we need to change the
title of the property from community property to joint
property after our divorce is finalized.

Thanks

Mike

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Posted by Address on September 9, 2007, 10:09 pm
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 The rules for taking advantage of the tax break on sale of
one's main residence definitely require that you used it as
your main home during 2 of the previous 5 years. It is
possible that consideration will survive a divorce -- but
only in 2 different chunks (i.e., $250K each); however,
that's further complicated (though not fatally, I suspect)
by your establishing the property as a rental.

Others may wade more deeply into this thicket; I'll stick
with my advice that you consult a tax attorney promptly, and
make sure you conduct yourself in accordance with his/her
sound advice.

Bill

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by Bill on September 9, 2007, 10:09 pm
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lallavj@yahoomail.com (Alex=A0M) posted:

> I need help in finding the best choice for my
> situation. I am undergoing a divorce that is
> likely to be later finalized this year. We lived in
> this house for more than 8 years and it has
> appreciated more than 500K. Last December
> my Ex and I decided to lease the property and
> we move to different appartments.
> Middle of this year we found a tenant and
> leased the property.
> My question is What we need to do to take
> advantage of 500K gain on appreciation (250K
> Each) allowed and subsequently showing the
> property as joint rental property. Any help will
> be appreciated.
> Also is there a max period before that we
> need to change the title of the property from
> community property to joint property after our
> divorce is finalized.

You should consult a tax attorney promptly.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Paul Thomas, CPA on September 9, 2007, 10:09 pm
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> I need help in finding the best choice for my situation. I
> am undergoing a divorce that is likely to be later finalized
> this year. We lived in this house for more than 8 years and
> it has appreciated more than 500K. Last December my Ex and I
> decided to lease the property and we move to different
> appartments.
>
> Middle of this year we found a tenant and leased the
> property.
>
> My question is What we need to do to take advantage of 500K
> gain on appreciation (250K Each) allowed and subsequently
> showing the property as joint rental property. Any help will
> be appreciated.
>
> Also is there a max period before that we need to change the
> title of the property from community property to joint
> property after our divorce is finalized.

You'll need to sell the property within three years from
when you placed the property into rental to benefit from the
$250k (each) gain exclusion. Beyond that point the exclusion
prorates down till it's gone after five years (certain
exceptions apply, but not here). Regardless, you'll have
some amount of gain based on the depreciation taken (allowed
or allowable). Depreciation will be based on the ~~~lower~~~
of your cost or it's market value (it's a declining market
right now), so keep that in mind.

I suppose if "both" of you are participating in this rental
activity, then you would have a default partnership. You
will each report your share of profits or losses on your
respective personal returns. Get with a local CPA or EA to
get the reporting structure figured out before time passes.
IE: Now instead of April 12th.

Talk to a local real estate attorney about the title issues.

--
Paul A. Thomas, CPA
Athens, Georgia

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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