I’m stating to prepare my taxes for the 1st time on our rental that was converted mid-year 2017 from a primary residence. Feeling good about just about everything except three fuzzy items:
1. Home was purchased in 2007 with a couple thousand in points paid for our initial mortgage (which we no longer have - has since been refi’d). Am I allowed to add those points paid for this asset to be depreciated over 27.5 years? It seems like I shouldn’t be able to, since we lived in it for 10 years before converting it, but thought I’d check!
2. We converted it 4/1/2017 and lived in it three months prior. So is the correct way to claim all the mortgage interest on the house to claim 75% of 2017 interest as an expense on the rental, then 25% on my own taxes? Same mortgage so the lender will just give us one 1098 I’m sure.
3. To establish the adjusted cost basis this first time, I’m allowed to add in capital improvements I’ve done over the past 10 years when it was our primary residence, right? I know to back out the value of the land as well. Capital improvements have been substantial, $25k+ of my money net of insurance claim proceeds, so I want to make sure I’m getting all that.
Thanks BP folks!
As I recall, if you owner occupied a home, got an OO mortgage, the points are deducted right then, the first year. I moved from a triplex that I owner occupied a unit, and the owner portion was treated as such.
I installed a new kitchen in the owner occupied portion. I bought the triplex in 1983, and the tenant portion was allocated 2/3 for depreciation and cost basis, including 2/3 of the points orignally. When I moved, the 1/3 I lived we started depreciating and we added in the kitchen into the cost basis for depreciation. But we moved in 1994. So the original tenant portion was depreciated under tax laws in effect in 1983, and the owner portion when we vacated was depreciated starting in 1994, under depreciation in effect in 1994, and we have two separate assets listed on the schedule E for the same building.
There was a debate I had with the CPA whether we should add the entire cost of the kitchen rehab, or a lesser amount for the time we used it, but at the end, we added in the entire cost to the cost basis. The CPA's opinion is it would be a minor thing to be noticed at a tax audit, if there is one. The new kitchen was installed around 1990, so the issue for me was we used it for a few years, and maybe we shouldn't book the full amount.
As far as the points, I believe you're a bit late for it.