Best Tax Strategy for converting personal property into a rental

Tax, SDIRAs & Cost Segregation
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Best Tax Strategy for converting personal property into a rental

Naush K.
Member since 2018 · 1 post · 0 votes

Hi BPers,

I'm converting my current property into a rental and want to maximize my write offs/depreciation and minimize my capital gains when it comes to sell.

My house was purchased in 2012 for $265k. I've done around $20k in updates. It needs a further $30k in updates. It's worth around $400k

I'd love to be able to write off or depreciate the $30k as part of the rental rather than being added to my cost basis. Can I convert the property into an S-Corp and retrieve my equity and set a higher cost basis. 

Are there any other strategies you've heard of?

Many Thanks

NK

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  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    5y

    Wouldn't you be able to depreciate your 315k cost basis over 27.5 years as soon as you place it into service (make it available for rent)?

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Naush K.:

    Hi BPers,

    I'm converting my current property into a rental and want to maximize my write offs/depreciation and minimize my capital gains when it comes to sell.

    My house was purchased in 2012 for $265k. I've done around $20k in updates. It needs a further $30k in updates. It's worth around $400k

    I'd love to be able to write off or depreciate the $30k as part of the rental rather than being added to my cost basis. Can I convert the property into an S-Corp and retrieve my equity and set a higher cost basis. 

    Are there any other strategies you've heard of?

    Many Thanks

    NK

    Most of the work you do on the property after you convert to rental is added to the basis. Same way, the work done to the property before you convert to rental, when houses is still personal, is also added to the basis. 
    But remember, the repairs done while personal is not added to the basis. So, it is recommended that you want until you convert the property to rental to do all the work. 

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    @Naush K.

    You want to work with an accountant who will make sure they properly calculate the depreciation when you place the property into service(into a rental).

    You also want to see if any of the $30,000 in updates can be currently expensed instead of capitalized.

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