Renting Primary Residences in 2013

Anyone planning to rent their primary residence in 2013 should be aware that the IRS has put into law certain requirements when a personal residence is converted into rental property. For example, the IRS has disallowed a deduction for any drop in value before you begin to rent. The starting point is the property’s (1) adjusted basis at the time of conversion or (2) fair market value at the time of conversion, whichever is lower. One important thing is to document and keep receipts that show what expenses were incurred (i.e. such as the selling costs, any expenses you pay out for the rental home while it is a rental, etc.). When the rental period is for less than one year, the IRS might contend that a loss should be disallowed on the grounds that the seller’s conversion of the residence to rental property was only temporary, not permanent. Its guidelines for home sellers warn that “you have not changed your home to rental property if you temporarily rent out your old home before selling it.” However, the guidelines on what is temporary and what is permanent are by no means the last word. They merely reflect the official IRS position on an issue and are not binding on the courts. Many are making these decisions due to the economic downturn. Unfortunately the IRS is not very sympathetic. They generally only provide exceptions to taxpayers for items related to early distribution from certain retirement accounts and nationally declared disasters. When it comes to a personal residence and/or rental property, there are no hardship exceptions. | Read More