A few complicated tax questions! CPA's please help!

4 Replies

My situation: I was living in my own home for more than half of 2016, and I recently bought a duplex. I am now living in 1/2 of my duplex, while renting out my old home and the other half of my duplex. I usually use turbo tax, and I'm usually very good at figuring things out as I use Turbo tax. But I would like some answers before I actually have to start figuring things out :)

My questions are 

1) Can I depreciate %100 of my duplex if I live in 1 side? 

2) Between the time when I rented out my home and when I actually got to move into my duplex, (2 months I had to wait because I had to give the old tenants time to move out) I was basically forced to live with my in-laws. I had to rent a storage unit for my tools and materials to do repairs, and I had to pay someone to use their shop to actually work on things (for my business: repairs, maintainance things. etc...) Do I get to write off the storage unit and shop usage charges for my business? Even though the shop usage was with a friend?

3) Since I lived in my house for 5 years before renting it, Do I still have to pay capital gains or "recapture" taxes when I sell it? Is there a certain amount of years that one must live there to be "exempt" from those taxes? Same with my duplex if I live there?

4) Also I would like to take my home office deduction while I lived at my house and duplex too... Can I take my home office deduction for part of the year while I lived at my house and part of the year I lived at my duplex? This seems kind of complicated to do, but hopefully not.

5) last question: If i buy something.. for example Ice melt for my duplex, Do I get to write off the whole thing or just %50 since I live there too?

Thanks to anyone who can help answer these questions!

1) You will literally be splitting your expenses 50/50. 50% go to schedule A and all you can deduct is 50% of your mortgage interest. The other 50% goes to schedule E- and only on that 50% do you get depreciation. Basically in your head think of them as two totally separate buildings- just split everything 50/50. 

2) No- I wouldn't write this off. 

3) The rule is 2 of the last 5 years. With the duplex even if you meet the 2/ most recent 5 years exemption you will only get to exclude 50% of the gain. 50% will always be taxable. You only have 1/2 as your primary residence. 

4) You can take the home office deduction the whole year (your CPA will prorate it based on your sq footage/total ) and % of each property through the year. Ensure with your CPA that the office is dedicated use and qualifying. 

5) Again, only 50% for the duplex. Think of your half as yours only. NOTHING is deductible. 

Originally posted by @Cam Jimmy :

My situation: I was living in my own home for more than half of 2016, and I recently bought a duplex. I am now living in 1/2 of my duplex, while renting out my old home and the other half of my duplex. I usually use turbo tax, and I'm usually very good at figuring things out as I use Turbo tax. But I would like some answers before I actually have to start figuring things out :)

My questions are 

1) Can I depreciate %100 of my duplex if I live in 1 side? 

2) Between the time when I rented out my home and when I actually got to move into my duplex, (2 months I had to wait because I had to give the old tenants time to move out) I was basically forced to live with my in-laws. I had to rent a storage unit for my tools and materials to do repairs, and I had to pay someone to use their shop to actually work on things (for my business: repairs, maintainance things. etc...) Do I get to write off the storage unit and shop usage charges for my business? Even though the shop usage was with a friend?

3) Since I lived in my house for 5 years before renting it, Do I still have to pay capital gains or "recapture" taxes when I sell it? Is there a certain amount of years that one must live there to be "exempt" from those taxes? Same with my duplex if I live there?

4) Also I would like to take my home office deduction while I lived at my house and duplex too... Can I take my home office deduction for part of the year while I lived at my house and part of the year I lived at my duplex? This seems kind of complicated to do, but hopefully not.

5) last question: If i buy something.. for example Ice melt for my duplex, Do I get to write off the whole thing or just %50 since I live there too?

Thanks to anyone who can help answer these questions!

 Between a home office in two houses, a former personal residence that is now a rental and a rental that you are house hacking, and wanting to take a home office deduction in - I think you're beyond Turbo Tax now...

Answers:

1.  No.  You'll depreciate the side you don't live in plus the portion for your home office on two separate forms, an 8829 and a Schedule E

2.  Do you have a business separate from your rentals?  If so, and you needed these spaces to run that business, then yes - you can write off these expenses against that business.  If you're talking about your rental business, it's unclear.  I'd get with a real estate savvy CPA and go into more detail on this topic

3.  If you lived in your house in 2 of the last 5 years you owned it before selling, you will not have capital gains.  Otherwise yes.  Essentially you can rent it for 3 years and then sell with no capital gains treatment.  You will likely still have depreciation recapture income though.

4.  Yes.  But as you said, this is pretty complicated.  I'd kiss Turbo Tax goodbye this year.

5.  If you buy something for the whole duplex - gas for the lawnmower, icemelt, a new roof, trash removal, internet... it is only 50% deductible since you cannot deduct these kinds of expenses personally.  Your property taxes and mortgage interest will be deductible 50% on Schedule E and 50% on Schedule A.

Originally posted by @Linda Weygant :

2.  Do you have a business separate from your rentals?  If so, and you needed these spaces to run that business, then yes - you can write off these expenses against that business.  If you're talking about your rental business, it's unclear.  I'd get with a real estate savvy CPA and go into more detail on this topic

Linda thanks for the response. My only business is my Rental Business. I DO have a business license for my rentals though, and I do all of my own work on my rentals. So I'd hope to be able to write these off.  

@Cam Jimmy

3.  Yes, you will have to pay taxes on unrecaptured depreciation if the sale of your former home is a taxable event.  Any time you have  rental property, you use depreciation to offset your rental income and perhaps even some of your other ordinary income.  When you sell a property for a profit, you are taxed on the depreciation that did not occur but claimed (or should have claimed) anyway.  

Same for your duplex.  The unit that is your rental is treated for tax purposes as a completely separate property from your primary residence.  You will (or should) take  depreciation expense as long as you have the property in service as a rental.  When the sale of this rental property is a taxable event, unrecaptured depreciation will be taxable..

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