Five factors were identified by the Tax Court to help in this classification for rental property taxation.
Many times a house or condo is purchased for personal use and then converted to income-producing property.
As an income-producing property (rental), there may be significant tax benefits.
- Operating costs are tax deductible.
- When sold, the sale is treated as a capital loss.
But to just say that the house is a rental is not enough.
The tax court has provided five factors to assist in making this determination.
- Length of time the house was occupied by the taxpayer as his residence before placing it on the market for sale;
- Whether the individual permanently abandoned all further personal use of the house;
- Character of the property (recreational or otherwise);
- Offers to rent;
- Offers to sell.
The best way to successfully manage the operation and/or sale of a “rental” is to understand the factors and document the support of the factors.
If you have further questions, please contact Bruce Andersen, MS (Tax), CPA, by email Bruce@AndersenCPA.com or by phone at 818-225-8022.
