Thinking of Renting Out Your Home?

DiSalvo CPA, Melbourne, Vero Beach, SebastianReal Estate is booming here in Indian River and Brevard Counties. If you are thinking about moving to a bigger, or even to a smaller place, but you would like to keep you current home, not sell it. Then you may face some tax implications if you decided to rent it out.

If you’ve made the decision to rent your primary residency instead of selling it, there are tax implications to be aware of. The tax code in this area can be complex, so it’s important to understand the rules and regulations upfront before you take the plunge.

First off, a residence is considered primary when you live in it full-time and it is not rented out for more than two weeks in any given year. Conversely, a residence is considered rental property if you use it personal use for no more than two weeks of the year or 10% of the days it is rented.

Tax Implications
Once you have converted your primary residency to a rental property, you will be required to report any rental income as taxable income. On the reverse side, you will also be able to deduct expenses for repairing the property as well as general maintenance.

In addition, the IRS does allow you to use depreciation of the property to offset income received on the property as well as taking other deductions such as property taxes, insurance, mortgage interest, utilities, and association fees.

Any costs over the amount of the total rental income cannot be deducted unless you meet the following conditions:
-You actively participate in all real estate activities for the property
-Your adjusted gross income is under $100K for the year
-Your total losses for all real estate activity does not exceed $25K for the year

The basis for depreciation for rental property is the lower of your adjusted basis – capital improvements plus purchase price – or the fair market value. The property must be depreciated over a 27.5 year period. Also, you are only allowed to depreciate the portion of the residency that is used for income generation.

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