How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lev Your Own Question

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23258
Experience:  Taxes, Immigration, Labor Relations
870116
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

Have 2 properties, one is personal residence, the other has

Resolved Question:

Have 2 properties, one is personal residence, the other has been income property for 18 yrs. Converted personal property to rental, converted rental to personal. If owner holds title to both, can he treat this transaction as a like-kind exchange (move depreciation one to the other) or does he need to recapture all of the depreciation on the rental converted to personal? rental that was converted has 2 owners on the title, 2nd owner is aware he will have to recapture his half of the depreciation taken.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
In order to satisfy section 1031 rules - the property must be sold or otherwise exchanged - in this case the ownership is not changed.
The old and new properties - both - for section 1031 must be investment or income producing properties - none could be personal property.
When the property is NOT sold - there is NO gain recognized - and there is no depreciation recapture - thus if the property simply changed from rental to personal use - there is NO tax liability. Only when the property eventually will be sold - the taxpayer will recognize the gain and a part of that gain will be attributable to the depreciation recapture.

Customer:

What do we do about the other partner that also holds title on the converted proprty, does he recapture his part of the depreciation?

Lev :

If there are two co-owners on the rental property - and one co-owner is selling his/her ownership interest - the gain or loss is determined on that half of the property - and there might be depreciation recapture - up to the amount of recognized gain.

Customer:

the original question did not send just the optional...

Customer:

ok. I misunderstood. both houses are in one name, partner did not hold title to anything but claimed his half of depreciation.

Lev :

If partner did not own the property - he/she may NOT claim the depreciation.
The taxpayer may only claim the depreciation on the property that is owned by that taxpayer.

Lev :

See here - http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/A-Brief-Overview-of-Depreciation
In order for a taxpayer to be allowed a depreciation deduction for a property, the property must meet all the following requirements:
The taxpayer must own the property. Taxpayers may also depreciate any capital improvements for property the taxpayer leases.


•A taxpayer must use the property in business or in an income-producing activity. If a taxpayer uses a property for business and for personal purposes, the taxpayer can only deduct depreciation based only on the business use of that property.


•The property must have a determinable useful life of more than one year.
As we see - the ownership is required to claim depreciation deduction.

Customer:

rent man is reading response...please stand by

Lev :

sure - take your time...

Customer:

owner thinks if he satisfies the 2 out of 5 rule on the property that he converted to personal use, he will not have to recapture depreciation.

Customer:

ever

Customer:

this house was a rental for 18 years prior and depreciation was claimed all 18 years

Lev :

That might be not correct
1. There is no taxable gain and there is no depreciation recapture if the property is not sold.
2. if the property is owned and used as a primary residence at least 2 out of 5 years before the sale - the taxpayer may exclude the capital gain from taxable income (up to $250k) - but depreciation recapture is not treated as a capital gain - and may not be excluded.
3. rental is considered a "nonqualified use" - see page 15 here - http://www.irs.gov/pub/irs-pdf/p523.pdf - that is a new law after 2009. so to fully exclude the capital gain after conversion - the property must not have nonqualified use during last 5 years before the sale - otherwise the gain will be partially excluded.

Customer:

ok. I think we understand now.

Customer:

Thank you for your time

Lev :

You are welcome. I will appreciate if you take you time to rate my work.
My goal is to provide EXCELLENT service.
You may come late to this page if you need any clarification - I will address all your concerns.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23258
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
Lev
Lev
Retired
19376 Satisfied Customers
Taxes, Immigration, Labor Relations