rdadams[at]panix.com (Dick Adams) wrote:

- quote -

If he can prove it was to be rental property, apparently yes.

Stu

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Harlan Lunsford <infamous EA> wrote:
- quote -

The OP stated his motive post-hoc. Each year several people
back out of real estate purchases for various reasons and
suffer personal losses. Will claiming it was rental property
convert it into an investment loss?

Dick

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rdadams[at]panix.com (Dick Adams) wrote:

- quote -

Apparently he had an incompetent real estate agent.

Stu

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Dick Adams wrote:
- quote -

(some snipped here for brevity)
Let it be noted, that nowhere did OP mention anything about not
being able to get a mortgage, just "financial difficulties".
In fact I think his motives is established, i.e. "to purchase a condo as
a rental unit".

ChEAr$,
Harlan Lunsford, infamous EA

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Coming back to square one.

John Smith <jsmith[at]company.com> wrote:

- quote -

So far responders have hypothesized this was a personal loss,
a business loss, or, in the case of one infamous EA, a
investment/capital loss!

I've purchased 4 houses and a condo and have yet to read a
contract that did not give me an out if I could not get a
mortgage. In fact, in this dismal swamp known as Maryland,
they make you qualify for a mortgage before your offer is
considered. So I do not understand why the OP's down
payment was lost.

We should all agree that facts and circumstances determine
the proper tax treatment. When property has multiple uses,
upon audit the Service will default to the usage has results
in the highest tax obligation and the taxpayer is responsible
for establishing any other usage. This is the ageless
business taxation problem of demolishing a building to erect
a new building and trying to expense the FMV of the old
building and the cost of demolition. Many try, few succeed.

If the OP can establish he is in the RE rental biz or that
he must have been getting into the biz because this condo
did not suit his personal needs, he has an argument worth
making. Otherwise it is a personal expense.

As for an investment loss, the auditor will most certainly
ask to see his investment portfolio.

Dick

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Arthur Kamlet wrote:

- quote -

Good point, gotta love those "retroactive" tax events!

But maybe those other taxpayers had deductible mortgage interest on a
second home and a non-deducible personal loss upon sale? I guess you'd
have to run the numbers both ways.

The OP's purchase never completed, so he never had any investment
interest expense, which is a good thing since he also had no investment
income to offset it against.

-Mark Bole

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In article <vtrfk.2341$t32.1370[at]bignews3.bellsouth.net> ,
Harlan Lunsford <hlunsford[at]bellsouth.net> wrote:
- quote -


And we can assume the mortgage interest was not claimed as
mortgage interest but as investment interest? That's one
of those mistakes that often trips up taxpayers who retroactively
bought invetment property instead of personal use property.

--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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Dick Adams wrote:
- quote -

Or, investment-use, if you don't use it personally or in a trade or
business.

- quote -

Rental real estate has always struck me as occupying an
imprecisely-defined area between business and investment, it has
characteristics of both but isn't exactly either.

- quote -

There is no "number of months" rule. You have to make the unit
available for rent and be seeking a tenant (so, for example, if you are
doing a major remodel, it's not available for rent). The longer you go
without a paying tenant, the harder it will be to show you were taking
reasonable actions to find one.

Let's start with the OP's question, "what schedule or form". He did not
buy a rental property, let alone put it into service, so I don't see how
Schedule E could be used. It doesn't seem to be a business start-up
expense, nor a casualty. If the transaction had succeeded, the down
payment would have been part of the depreciable basis (at least, the
part allocated to the building, not the land). What about passive
activity limitations, I'm not sure if they have any bearing.

If it's pretty clear that this purchase was not intended for use as
personal residence but as a rental, I'd put it as a short-term capital
loss on Sched. D, whether or not the taxpayer was already a landlord.

-Mark Bole

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Harlan Lunsford <hlunsford[at]bellsouth.net> wrote:
- quote -

Good! I think that's the best answer. Thanks, Harlan.

Stu

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Dick Adams wrote:
- quote -

No certain number of months. All depends on the facts. Just the facts.

Say that one moves out October 1st, takes two months to renovate and
get it ready to rent, then on December 1st advertises it ready to rent
in a nice suburb (Catonsville) in the Baltimore Sun. Depreciation for
one month, Dec, is taken in that tax year.

ChEAr$,
Harlan Lunsford, EA n LA

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Bill Brown wrote:
- quote -

investment property is that was the purpose, hence a capital loss.

ChEAr$,
Harlan Lunsford, EA n LA

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Dick Adams wrote:
- quote -

Whether or not there is a deductible loss depends upon intent. If
the contract was entered into to buy property that was not
intended for personal use, the loss would be deductible. The
taxpayer bears the burden of proving that the property was not
intended for personal use.

--
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Bill Brown <brownwp[at]longwood.edu> wrote:
- quote -

If you are correct, then the OP did not have rental
property because he never had it to put up for rent.
However, if he was in the rental property business,
he probably has an argument for the deduction.

However, I disagree in part with your premise. If
someone moved on Oct 31st and put their house up for
rent. However, if it was unrented by mid-Feb when
they filed their taxes, would they have two months
depreciation on their return?

How many months before renting is the rule for
deducting expenses rather than capitalizing them?
My guess is three months.

Dick

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On Jul 15, 10:24*am, rdad...[at]panix.com (Dick Adams) wrote:

- quote -

It becomes rental property, I believe, when it is made available for
rent.

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Stuart Bronstein <spamtrap[at]lexregia.com> wrote:
- quote -

The OP wrote:
"I signed an contract to purchase a condo as a rental unit.
Due to financial difficulty, I was not able to close it
and lost the down payment."

As almost always, it depends on the facts and circumstances.
My recollection is that if the buyer is unable to get a mortgage,
the earnest money (deposit) is returned to the buyer. Thus, my
presumption was that he was arranging financing from investors
and lost his deposit when the investors did not come through.
This is a common mistake by rental property purchasers.

Dick

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sethb[at]panix.com (Seth) wrote:
- quote -

Seems to me that it would be a matter of proof. If the taxpayer can
establish to the satisfaction of a court that the payment was to
purchase investment property, he's probably ok taking the deduction.
On the other hand if he made a loan application saying it was for
personal use, that would pretty much end the matter.

Stu

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In article <g5ibva$rd9$1[at]reader1.panix.com> ,
Dick Adams <rdadams[at]panix.com> wrote:

- quote -

That could prove rather difficult if, as is typical, the purchaser
applied for a mortgage and stated that it would be owner-occupied. If
OP has similar evidence (e.g. applied for a mortgage as a rental
property), wouldn't that suffice?

Seth

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Alan <sfcnm-mtm[at]yahoo.com> wrote:
- quote -

NOT QUITE. It is personal use property unless and until you
rent it. If the OP had written that the down-payment was
lost by an LLC setup for real estate rentals or that the
financial difficulties were on the part of the prospective
tenant, there would be some gray area.

If a deduction were allowed for failed real estate purchases,
everyone would claim the real estate was for rental purposes.

I will grant that if the OP has other rental properties, an
argument can be made for a business loss - but that was not
stated. Such an argument is most likely unavailable to a
first time rental property purchaser.

Dick

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Bill Brown wrote:
- quote -

it was rental property. That makes the loss deductible.

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On Jul 15, 12:48*am, Alan <sfcnm-...[at]yahoo.com> wrote:
- quote -

Since when is rental property "personal-use" property?

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