I bought a simple ranch style home with no basement a few years ago. I have not done anything except change air filters and grease the garage door rollers.
Is there anything else I need to be mantaining /checking? Is there an internet checklist for 3-5 year old homes?
I have actually been renting it out and claimed almost $12k in depcreciation over the last three years? What exactly is depreciating that amount , as the home still feels like 'new' to me?
eventually your home will need a new roof, new driveway, new furnace etc. just smile at the tax deduction.
have furnace and air serviced perodically, clean gutters downspouts, fix up yard.beginning of list
, mother nature wants to destroy everything eventually. stuff just wears out falls apart
downspouts, > fix up yard.beginning of list
Thanks for the tips, but I forgot to mention this is a condo. So all exterior maintenance is covered by the condo association. I wonder if I am claiming too much depreciation since I am already deducting condo fees? I dont recall reading about an IRS tax law for lesser depreciation for condos?
I wonder if
You're looking HERE for that kind of advice?!
The IRS does accept advice from newsgroups as long as at least two posters corroborate the story. .
From Real Estate Brokers exam:
What does not belong on the following list:
Answer: #4 - you can get rid of syphillis.
That's a cheap shot. Might as well say the IRS does NOT accept advice from newsgroups.
Enjoy the deductions while you can.
Sometime in the next few years you will get a bad tenant and learn what depreciation is all about -:)
And be sure not to keep it too long. All that post 1997 depreciation is recaptured as ordinary income when you sell the property. If you have a gain on the sale this can get quite nasty.
Me bitter? Nope just experienced is what I call it.
The fact that it is a condo makes no difference. The condo fees are the same as cleaning & maintatence for a regular single family home. IE: they are a normal cost of business for the type of unit.
Colbyt
Depreciation is the greatest myth of most real estate.
Most capital items lose value over time. Cars, lawn mowers, computers, desks, etc. The IRS doesn't want you to expense these items and claim the deduction in one year, so they require you so spread it out. If the depreciation on a computer is 3 years and the computer cost you $900, then you claim $300 in depreciation each year. At the end of 3 years, the computer has no book value and probably no actual value and you throw it away if it isn't up to par.
But with your condo, you are doing the same thing. Over 40 years you are depreciation it. If bought it for $160,000, you claim about $4000 per year. At the end of 40 years it has no book value. So next year you've taken $16,000 depreciation on your $160,000 condo and you decide to sell it for $200,000. Your capital gain is $200,000 - (160,000-16,000) which is $56,000 (not $40,000). The IRS has recaptured the depreciation -- there is no such thing as a free lunch.
The good news is that there's a simple way you can generally give a fully depreciate item to your kids and they can bump up the book value to market value without tax consequence. The bad news is that you have to DIE to do it.
Don't take this as tax advice and there are interesting loopholes to put off the tax man but in the end, the tax man wins.
I thoght you just depreciate over 27.5 years the basis, i.e the purchase price minus the cost of the land. So for a 160k home, the basis is around 120k.
Ill need to read up on the capital gains tax. I thought if you put the money into another property you dont owe any taxes. Or if the sale prices is less than 250k for an individual, then you also dont owe capital gains tax?
I think if it's your primary residence, you get a once-in-lifetime exemption from captial gains. So it might be benefitial to move into the place before you sell it. Check the tax laws.
If you sell, you can do a tax-deferred gain if you "swap" into another building. It happens all the time, but you need legal/financial advice to do it.
Time to go read some tax codes. Nothing better than reading about depreciation as bedtime reading. I'm yawning just thinking about it.
You are close to right. 80% of the purchase price has long been a defacto acceptable structure valuation to the IRS. Meaning you can depreciate 80%.
The depreciation period for residential rental property is 27.5 years. Depending on the month it is placed in service that might stretch out to 29 tax years with a minor deduction the first and last year.
The gottcha is that capital improvements like a new roof or furnace must be depreciated over the same time period. You spend all the money one year and don't get to write it off. You can wind up with several depreciation schedules for one property.
Tax free exchanges for a like property are an option with rules. New property must cost more than the old and you can not achieve any mortgage relief in the transaction. Basis in new property is adjusted by the basis in the old. That means you do not get to depreciate the new property at full purchase price. Only the remaining basis. You must never take physical custody of a cash proceeds and you must buy the new property with 6 months (I think it is 6). There is a whole list of complicated timeframes that must be met. Professional advice is highly recommended for this.
All depreciation is subject to recapture when the investment is sold. This is at the ordinary income rate and NOT at the capital gains rate. So, simply reducing the basis by the depreciation is not 100% accurate.
The 250K capital gains write off is for a house that has been your primary residence for 2 of the 5 years immediately prior to the sale. If you convert a rental to a residence for 2 years prior to selling it you can exclude the capital gain portion of the sale but all post 1997 depreciation or earlier ACRS depreciation is still subject to recapture as ordinary income at your tax rate.
Please do not use this post as legal advice. I am an informed investor but my understanding may contain flaws.
Colbyt
i had realtives who replaced 1/2 of roof each year for years so it was a repair rather than replacement. repairs can be written off each year.
your labor for repairs isnt deductinble, jus paid help/ although you can deduct supplies
i had realtives who replaced 1/2 of roof each year for years so it was a repair rather than replacement. repairs can be written off each year.
[snip]Careful here -- a capital improvement is defined as something which exceeds a certain dollar value, with a life expectancy of more than one year -- accounting 101. If your "repairs" exceed that threshhold technically they are capital improvements and there might be problems with a comprehensive audit --
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