- quote -

Seriously, how often, and when do you ever see a FMV for
property being less than its basis?

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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- quote -

I took OP's post at this point to mean that he was asking
about leasing it for a second three year period which would
mean he would not have lived in it for six years before
re-occupying it. I might have mis-underestood.

Ivan

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- quote -

he wouldn't have to move in for a full two years, just
enough to have lived in the home for two of the preceding
five years (the two year period need not be continuous).
But, you must REALLY move back in, with the house being your
principal residence. No fooling around.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Frank S. Duke, Jr. wrote:
- quote -

SNIP

Again, I disagree with Mr. Duke (see my reply in the thread
"Inherit, repair, rent, and occupy. Any advice" Upon
conversion to a rental, the basis for depreciation is the
LOWER of cost basis or fair market value. In this case,
since the OP paid $200,000, the $250,000 fair market value
is not applicable.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

- quote -

An official written appraisal at conversion time is
recommended to avoid future tax headaches. Else the IRS may
make its own appraisal which may be unfavorable to you.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

<shiling99[at]yahoo.com> wrote:

- quote -

Download IRS Pubs 523 and 527 from www.irs.gov 523 is about
selling your home and 527 is about renting it.

I strongly suggest that you consult a tax pro to get you
started and preferrably to do your taxes this first year,
2005.

Hint. Make sure that you have and keep the settlement
statement from your initial purchase of the house and
records of any/all improvements. They will be needed for
setting up the basis in the property for depreciation during
the lease and for the eventual sale if you miss the capital
gains exclusion.

1) To exclude the capital gain, you have to have lived there
two of the five years prior to the date of sale (the closing
date.) Therefore, you have to manage to market the house and
arrange to close no more than three years from the day you
move(d) out. This will be tricky with the three year lease
but not necessarily impossible. You might have to provide
some incentive to the buyer or to the tenant to pull it off.

Someone will have to figure out the exact last day to close
without losing the exclusion. One extra day would cost you
the exclusion!!! Then you should allow some extra time as
the few sales I have done never closed on or before the date
stated on the contract.

2) You will have to depreciate the house during the lease.
This will save you some current taxes each year of the lease
period. The depreciation will have to be recaptured when you
sell. Even if you don't claim the depreciation you will
have to pretend you did and pay the taxes on the recapture -
IRS rules. This applies even if you otherwise qualify for
the capital gains exclusion.

- quote -

See above. Your basis will be increased (less tax) by many
of the costs of the initial purchase and by the costs of any
improvements. Your basis will be decreased (more tax) by the
depreciation taken during the lease period. Some/most of the
selling costs will reduce the amount of gain.

If you are looking at a major (long term) capital gain you
may want to move back into the house for two years and then
sell and get the exclusion. There will still be the issue of
recapturing the depreciation, however.

- quote -

I am not a tax professional but I have rented out and sold a
rental property and I will be selling a home that was leased
prior to us moving into it. I have spent a lot of time
following this newsgroup and reading Pubs 523 & 527.

Ivan Erwin

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

<shiling99[at]yahoo.com> wrote:

- quote -

Download IRS Pubs 523 and 527 from www.irs.gov 523 is about
selling your home and 527 is about renting it.

I strongly suggest that you consult a tax pro to get you started and
preferrably to do your taxes this first year, 2005.

Hint. Make sure that you have and keep the settlement statement
from your initial purchase of the house and records of any/all
improvements. They will be needed for setting up the basis in
the property for depreciation during the lease and for the eventual
sale if you miss the capital gains exclusion.

1) To exclude the capital gain, you have to have lived there two
of the five years prior to the date of sale (the closing date.)
Therefore, you have to manage to market the house and
arrange to close no more than three years from the day you
move(d) out. This will be tricky with the three year lease but not
necessarily impossible. You might have to provide some
incentive to the buyer or to the tenant to pull it off.

Someone will have to figure out the exact last day to close
without losing the exclusion. One extra day would cost you
the exclusion!!! Then you should allow some extra time as
the few sales I have done never closed on or before the date
stated on the contract.

2) You will have to depreciate the house during the lease.
This will save you some current taxes each year of the lease
period. The depreciation will have to be recaptured when
you sell. Even if you don't claim the depreciation you will
have to pretend you did and pay the taxes on the recapture
- IRS rules. This applies even if you otherwise qualify for
the capital gains exclusion.

- quote -

See above. Your basis will be increased (less tax) by many of
the costs of the initial purchase and by the costs of any
improvements. Your basis will be decreased (more tax) by the
depreciation taken during the lease period. Some/most of the
selling costs will reduce the amount of gain.

If you are looking at a major (long term) capital gain you
may want to move back into the house for two years and then
sell and get the exclusion. There will still be the issue of
recapturing the depreciation, however.

- quote -

I am not a tax professional but I have rented out and sold a
rental property and I will be selling a home that was leased
prior to us moving into it. I have spent a lot of time following
this newsgroup and reading Pubs 523 & 527.

Ivan Erwin

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"shiling99[at]yahoo.com" <shiling99[at]yahoo.com> wrote:

- quote -

$200,000 and you would pay gains on the depreciation claimed
at the very least, and if over 3 years from now, on the
entire gain.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

shiling99[at]yahoo.com at shiling99[at]yahoo.com wrote:

- quote -

As of now, you have owned and lived in the house for 2 out
of the last 5 years of you should be able to sell it and not
pay tax on any capital gains up to $250,000 single or
$500,000 married.

- quote -

At the time it becomes available to rent, it converts to a
rental property at fair market value and you MUST begin to
depreciate the value of the building (after subtracting the
value of the land).

- quote -

At the end of 3 years, you will be exactly on the edge of
the requirement that you have lived in it two out of the
last five years. Unless you sell it immediately ore move
back in, you will lose your ability to exempt the capital
gains.

- quote -

At the time you begin to rent it, your basis will be fair
market value, say $250,000. Assuming the land is worth 20%,
your depreciable base will be $200,000, depreciated straight
line over 27.5 years or $7273 a year. At the end of 3
years, your basis will have declined by that much and
increased by any improvements you make. You could also
choose to separate out furniture and appliances for
depreciation over 5 years.

This is a lot more complicated than it seems. You should
seek that advice of a professional with experience in real
estate tax accounting.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

I bought a house in Jan 2000 and live there up till now (5+
years).

The house will lease for another three years (Aug 2005-Aug
2008). I paid $200,000 for the house and now it is $250,000
at fair market value.

If I sell the house three years later, I think I don't need
to pay any gains on it.

Here is my question. If I continue lease out house, say
another three years. What is my capital gain base? The
base should be $200,000 or $250,000?

Thanks in advance.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >