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I'm doing my taxes and have a question, or a few....
Here's the situation:
Last year, we sold our Nautical Estates Condo which we frequently rented out through a local rental/management company. We took the proceeds (which we received a 1099 for)and purchased a home for our exclusive use, but to avoid the capital gains taxes we completed the paperwork for a 1031 Exchange. In 2003, we had income on the condo, and we allowed friends to "rent" the house from us a few times.
This year, however, we did rent the house for a 3 month period to "snowbirds" and we will be 1099'd as we went through our property manager.
I only want to rent for the 3 months, and I think we have to make the property available for 24 months for rent from the date of purchase.
Do any of you have experience with this? If so, what did you do? I want to be legal with the IRS but I also want to reduce my tax liability just like any other American!
Thanks in advance...
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The house is currently a rental property. If you convert the house into your personal residense and maintain that for 2 years, then you can get the $500 thousand exemption. Talk to your tax professional, if you don' t have one, then get one.
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So Cal is right, I just went through it with my tax man. The house must be your primary residence for two years to avoid having to pay capital gains tax when you sell it.
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Summerlove, not sure if all your details are in your post but this is what I get out of it...
The 1031 Exchange would only be to your advantage if you sold your rental in order to get into another rental, without the IRS recognizing a gain. If you are single and sold your rental and made a profit of over 250k (500k if married) then you would want to do a 1031 Exchange using 100% of the $ made off the sale to get into another property without paying a tax. Like you bought a home for 100k and sold it a month later for 500k, you would take the 400k and buy another rental without paying a tax on the gain. But if you owned the condo for 2 years, and chances are you didn't make 250k or more on the sale then you would not be taxed on the proceeds of the sale. Also, you have been 1099'd on the cash flow you received already. Basically you sold your "rental" and just bought a home. I have a great accountant if you want a # just to keep your ass clean and check the info out. Like I said, this is what I got out of your post and hope it helps! :D
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This is why I quit doing my own taxes, I discovered I may have screwed myself, but I don't want to file an ammended return for fear of an audit (who knows what else I goofed up). So, just as I wouldn't recommend an amature work on their new GMC I will not do my own taxes. I miss the days of doing the 1040EZ, but I don't miss the money I was making when I was using it.:D
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Thanks guys - and for the PM's as well!
I guess it's off to the accountant.......
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Originally posted by summerlove
I'm doing my taxes and have a question, or a few....
Here's the situation:
I only want to rent for the 3 months, and I think we have to make the property available for 24 months for rent from the date of purchase.
summerlove,
two things I seem to recall;
1) you only have to rent the house out for something like 21 days per year for it to be considered a rental, and
2) my in-laws did a 1031 exchange and rented/leased for only one year and then converted it into their primary residence. I've been told by several professionals in the field that it's all about your "intent" at the time. So, you intended for it to be a rental and did so for one year. After this time I think you're o.k. to convert it into a primary residence or a 2nd/vacation home without any consequences.
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Originally posted by RiverForUs
it's all about your "intent" at the time. So, you intended for it to be a rental and did so for one year. After this time I think you're o.k. to convert it into a primary residence or a 2nd/vacation home without any consequences.
Thanks! I always intended for it to be a rental ;) ;) , but I'm making sure I do the right thing. I don't want to do something really bad that wil get me in trouble with the tax man. I appreciate your input and when I talk to the acct I'll get back and fill all of you in on this....
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Originally posted by summerlove
Thanks! I always intended for it to be a rental ;) ;) , but I'm making sure I do the right thing. I don't want to do something really bad that wil get me in trouble with the tax man. I appreciate your input and when I talk to the acct I'll get back and fill all of you in on this....
SummerLove,
I'd appreciate any knowledge you might get on this, I'm in the same boat but not doing taxes for a little while yet. Thanks.
Ziggy
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Summerlove, Do you have a CPA? If not you better find one. You have sold what appears to be a mixed use property(vacation rental). Even though your original intention was to convert it to exclusive personal use, you did not. Taxability would depend upon whether or not there was a reduction in the trade or business use aspect of the replacement property(vs the relinquished property), and whether or not you had a gain on the disposal of the relinquished property. Did you know that each day you spend at these properties doing repairs of any sort is not considered personal use of said property? Regardless, because of the mixed use character of these properties, not only do you have the complexity of a 1031 exchange, you have the added complexity of exchanging a vacation rental. The 1031 has to be reported on your t/r in the year you sold the relinquished property. Paying your CPA to figure this out and properly report the transaction, and advise you re what to do herein will be an exceptional investment on your part(again, assuming you had a gain in the first place). Yes, I am a CPA. Call me if you like or find your own, I don't care, I've got PLEANTY of work right now. Good luck. Tab
