Converting Home to Rental to Get Tax Loss Deduction

If you move out of a house and rent it to a friend for less than fair market value rent, can you then take a tax loss on the subsequent sale of the house? If the home is not converted to a rental property, the loss is disallowed as a personal tax loss. If the…Continue readingConverting Home to Rental to Get Tax Loss Deduction

What is a Rental Activity?

The ability to generate current year tax losses is a strong incentive for high-income taxpayers to own real estate. Real estate often produces tax losses, but not economic losses. This happens because the current operating expenses plus tax depreciation result in a current year loss. At the same time, the property likely increased in value…Continue readingWhat is a Rental Activity?

Deducting Interest for More than One Home

The mortgage interest deduction seems simple enough. The Code provides a deduction for mortgage interest that is paid during the year. It starts with a broad grant: There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness. Then these 18 words in a single sentence are followed…Continue readingDeducting Interest for More than One Home

Sale of Trailers Doesn’t Qualify for Installment Sale Treatment

If you buy, subdivide and sell real estate, can you seller-finance the sales and report the gain over a long period of time? The answer is generally yes, but advance planning is needed. The court addresses this in Joyner Family Limited Partnership v. Commissioner, T.C. Memo. 2019-159. Facts & Procedural History The taxpayers purchased land…Continue readingSale of Trailers Doesn’t Qualify for Installment Sale Treatment

Records Needed for Partial Asset Dispositions

Taxpayers often overlook “partial asset dispositions.” Their tax advisers do too. This may be due to it being a depreciation issue that seems unimportant. It may also be that the partial asset disposition is a relatively new concept. Regardless, partial asset dispositions can save taxpayers quite a bit in taxes (it is a timing issue,…Continue readingRecords Needed for Partial Asset Dispositions

Documenting the Sec. 199a Rental Real Estate Safe Harbor

We have previously considered the “trade or business” requirement for the Section 199a deduction. The government recently issued guidance to clarify when rental real estate activities can qualify for the deduction. While the guidance is needed, it adopts a record keeping requirement that effectively prevents most rental real estate activities from ever qualifying for the…Continue readingDocumenting the Sec. 199a Rental Real Estate Safe Harbor

How to Allocate Tax Basis for Real Estate

If you sell real estate, you pay tax on the gain. Gain is the product of the sales price less tax basis. Tax basis in turn is the amount invested in the property. But how do you calculate and then prove tax basis for buildings located on the property when you sell some but keep…Continue readingHow to Allocate Tax Basis for Real Estate

The Trade or Business Requirement for the Sec. 199A Deduction

The new Sec. 199A deduction that provides a 20 percent benefit for flow through entities has been in the news as of late.  The Yaryan v. Commissioner, T.C. Memo. 2018-129, case provides an opportunity to consider one aspect of this new Sec. 199A deduction.  Specifically, the Treasury released regulations that adopt a “trade or business” standard…Continue readingThe Trade or Business Requirement for the Sec. 199A Deduction

IRS Concludes Open-Air Parking Garages are Buildings

In recent Chief Counsel Memo #20125201F, the IRS concludes that open-air parking garages are considered buildings rather than land improvements for tax purposes and that a taxpayer’s conclusion to the contrary warrants the assessment of a negligence penalty. Classification as a building or land improvement presents a timing issue. A building generally has a 39-year…Continue readingIRS Concludes Open-Air Parking Garages are Buildings

Real Estate Purchase Price Reduction

The term “income” is broad. It includes just about any money or gain that a person receives. There are exceptions, however. Take the purchase price reduction. Assume Party A sells property to Party B for $100. Party A will likely have a gain on the sale. The gain is income and may trigger income tax.…Continue readingReal Estate Purchase Price Reduction

Tax Basis Planning for Inherited Property

The gain from the sale property is subject to income tax.  Gain is generally the sales price minus tax basis, and tax basis is generally the cost or investment into the property.  When a person owns property at death and the property passes to the heirs, the heirs get a tax basis equal to the…Continue readingTax Basis Planning for Inherited Property