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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3346
Experience:  15+ years tax preparation and tax advice.
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Tax Questions in CA I rented my CA personal home for 1/2

Customer Question

Tax Questions in CA: I rented my CA personal home for 1/2 of the year in 2009. The balance of the year, I could not rent it and tried to rent and sell it. In doing my income taxes via Turbotax, it had be depreciate the home as a rental. With the home purchased in 2005 for $1,550,000 the depreciation and expenses were a -112,000 for 2009 year. This gave me no benefit in my tax deducations at all, in fact, I owe. If i placed this as personal residence and took advantage of the tax and interest deducation, I get a big refund. Why? Is there a way to use this as a benefit?
Submitted: 6 years ago.
Category: Tax
Expert:  Wendy Reed replied 6 years ago.

Hello there,

It is possible that because of your income, passive losses (such as rental real estate) are not allowed during the current year, but carried over until they can be used. Generally, passive losses are not allowed when your income is $150,000 or more. This is the reason that you got a larger refund when you put it down as a personal residence and deducted interest and taxes...because these deductions are generally not disallowed (but sometimes limited due to mortgage int limitation and itemized deduction limitation)

 

If the use of the home was not personal, then the rent and expenses should be placed on Schedule E, which unfortunately yields this consequence. The exception to this would be if you were renting not for profit, such as charging less for rent than the fair market value, or simply renting just to preserve the value of the house until it was sold... In this case you would report the rents on line 21 of the 1040, and you could deduct the expenses of the rental in appropriate places on schedule A. See page 17 of the rental real estate publication for more information:

http://www.irs.gov/pub/irs-pdf/p527.pdf

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