Rental Property As Primary Residence

[Alter]

s About Taxes)/Rental Property as Primary Residence Advertisement Expert: Glenn D Schnabel - 12/28/2008 : I purchased a property for my mother-in-law in April 2006 and have claimed it as a rental property.  

Through honest reporting of expenses and actual income received from my mother-in-law, I have kept the annual gain/loss at nearly zero.

Summer of 2007 I sold my primary home(military transfer overseas).  My son(age 18) moved back to the States and lives in the rental house with his grandmother since Jan 2008.  Due to financial hardships, my mother-in-law can't pay much rent anymore.  I don't mind paying the difference, but I'm concerned with claiming it as a rental property when I pay more than half the mortgage and two family members reside in the home.

Since I don't have a home in the States anymore(living overseas), can I claim the rental property as a primary residence for tax purposes?  

If so, how and what are the implications for claiming depreciation in the past?

Thanks, Tim

ANSWER: Tim,

Thank you for your question.

1)Since I don't have a home in the States anymore(living

overseas), can I claim the rental property as a primary

residence for tax purposes?  

I would think that you can only have one principal residence.

You could consider this your second home.

If so, how and what are the implications for claiming

depreciation in the past?

Any depreciation you claimed in the past, upon sale or disposition of, will result in recapture as ordinary income.

I hope this is helpful.

Happy Holidays

---------- FOLLOW-UP ----------

Thank you for your assistance.  

I'm considering selling the property this spring, would it be best to leave it as rental property or switch to a second home for the 2008 tax year?

What do I have to do to claim it as a second home(do I need to file anything to notify the IRS of the switch)?

Tim

[Gerontius]

Tim,

Thank you for your follow up question.

1)I'm considering selling the property this spring, would it be best to leave it as rental property or switch to a second home for the 2008 tax year?

If you switch it to a second home, you will still have to report the gain on the property. If you anticipate a loss, you would get the loss if it was considered rental property and not a second home.

Either way, you would still have recapture of depreciation as ordinary income.

2)What do I have to do to claim it as a second home(do I need to file anything to notify the IRS of the switch)?

When declaring a second home, you just take the mortgage interest and the real estate taxes as an itemized deduction.

Hope this is helpful.

Happy Holidays.