"Ray" <rayj.balt[at]DELTHISverizon.net> wrote:

- quote -

No, you are not correct. When she sells the property, her
adjusted basis for calculating gain or loss is the cost
less depreciation allowed OR ALLOWABLE. In other words, she
must reduce her cost by the depreciation she should have
claimed! AND, the unclaimed depreciation (allowable
depreciation) is still subject to recapture.

There are ways to minimize the effect of the reduction in
basis for allowable but unclaimed depreciation. But, the
recapture rule doesn't go away.

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

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Ray wrote:

- quote -

I don't think so. If you don't take depreciation, and you
are audited for the year in which you sell the property, I
believe the depreciation will be imputed, and you will pay
recapture taxes anyway. You may as well get the benefit of
the depreciation and avoid the aggravation.

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"Frederick Lorca" <FrederickGLorca[at]fictitious.org> wrote:

- quote -

I'd think it would be more in the nature of a loan than income.

- quote -

That publication says,

"Do not include a security deposit in your income when you
receive it if you plan to return it to your tenant at the
end of the lease. But if you keep part or all of the
security deposit during any year because your tenant does
not live up to the terms of the lease, include the amount
you keep in your income in that year.

"If an amount called a security deposit is to be used as a
final payment of rent, it is advanced rent. Include it in
your income when you receive it."

Stu

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"Ray" <rayj.b...[at]DELTHISverizon.net> wrote:

- quote -

Depreciation is definitely *not* a "toss-up." Claim it!!
Here's why: she'll "lose through recapture" - that's your
description - whatever she could save now, whether or not
she chooses to save it now. "Depreciation - use it or lose
it" is an apt but cynical description of how the IRS rules
work.

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"Ray" <rayj.b...[at]DELTHISverizon.net> wrote:

- quote -

Do not include a security deposit in your income when you
receive it if you plan to return it to your tenant at the
end of the lease. But if you keep part or all of the
security deposit during any year because your tenant does
not live up to the terms of the lease, include the amount
you keep in your income in that year.

If an amount called a security deposit is to be used as a
final payment of rent, it is advance rent. Include it in
your income when you receive it.

Report rental income and expense on Schedule E.

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Thanks Herb --

Am I correct that claiming depreciation is a toss-up?
Whatever my daughter saves now she would lose through
recapture when she sells the house?

-- Ray

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Thanks Frederick, for this and other advice as well.

One more quick question:

Am I correct that it's a toss-up as to whether my daughter depreciates the
house she is now renting? Whatever she saves now would be lost later with
recapture when she sells the house.

-- Ray

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- quote -

I hope I cut and pasted correctly. I don't kow how leases
are normally worded, but if the security deposit is to be
returned (absent the tenant's failure on some part), then
the security deposit is not included as income when it is
received (i.e. when the lease begins). Do leases still call
for "last month's rent" instead of a "security deposit". I
suppose some do . . ..

Security deposits. Do not include a security deposit in your
income when you receive it if you plan to return it to your
tenant at the end of the lease. But if you keep part or all
of the security deposit during any year because your tenant
does not live up to the terms of the lease, include the part
you keep in your income that year. If an amount called a
security deposit is to be used as a final payment of rent,
it is advance rent. Include it as income when you receive
it.

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"Ray" <rayj.balt[at]DELTHISverizon.net> wrote:

- quote -

If she hasn't already, she should talk to a real estate
lawyer to find out how it must be handled under local law.
In some jurisdictions it must be held in an escrow account,
with the interest paid annually to the tenant.

For tax purposes it's nothing until she winds up using it,
in which case it becomes rent received.

- quote -

No. Rental income goes on Schedule E. See IRS Publication
527.

--
Phil Marti
Clarksburg, MD

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"Ray" <rayj.b...[at]DELTHISverizon.net> wrote:

- quote -

No. Rental income and expenses and depreciation are reported
on Schedule E.

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- quote -

Her gross rental proceeds include the deposit. The rental
income and expenses are reported on Schedule E. For more
information, see IRS Publication 527.

http://www.irs.gov/pub/irs-pdf/p527.pdf

Frederick Lorca

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My daughter began renting her house in November of 2006. In
addition to two months of rent, she received a deposit equal
to a month's rent.

How is this deposit handled?

Is a Schedule C the best way to handle the rent income?

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