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What are the tax effects if I convert a rental property to

a second home?...
What are the tax effects if I convert a rental property to a second home?
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Answered in 46 minutes by:
4/11/2011
Zip Taxes
Zip Taxes, Tax Preparer
Category: Tax
Satisfied Customers: 156
Experience: CTEC Licensed / Mgmt Experience with H & R Block... Self Employed since 1986 Experienced in all Scheds
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Zip Taxes :

Thank you having the trust to answer your question. Please Hit Accept after Questioned Answered... Bonuses are very Welcomed and Appreciated.

Zip Taxes :

If you have been depreciating the home on a schedule E and you want to convert, you can. There are questions in the software to do so on your depreciation questions.

Zip Taxes :

You will show to convert from Rental to Home or Second Home which you can write off the interest and taxes on your Schedule A

Customer:

What software are you referring to? What about the amount depreciated? If I then sell the property what taxes are owed, if any?

Zip Taxes :

Usually any software would be able to provide you this info

Zip Taxes :

www.TaxAct.com is a good one

Zip Taxes :

I keep hearing the Turbo Tax is having issues with Schedule M

Customer:

Thanks for responding to my question. I appreciate it. I've been using TurboTax for some years and am quite familiar with how it works in this area. I need a more definitive overview of the major tax implications of converting a rental condo to a second home and so would like to get an answer from another Expert. Thanks, XXXXX XXXXX your reply.

Zip Taxes :

Granted

Ask Your Own Tax Question
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,886
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello and thank you for using Just Answer.

The previous responder asked me to address your concerns.

Since you can not exclude gain on a second home like you would on a main home, when and if you sale the property you will pay tax on the gain. The depreciation that you claimed or could have claimed will need to be recaptured at the time of sale.

Part of the gain will be taxed as a capital gain and may qualify for the minimum rate on long-term gains. The part of the gain that is related to depreciation, however, will be taxed at a maximum capital gains rate. The technical term for gain related to depreciation on residential property is called unrecaptured section 1250 gain.
While you are using the property as a second home the usual rules apply as to what you may claim on your Schedule A. They are like the ones you may already be claiming for your main home, interest and taxes.

Let me know if you need clarification prior to accepting and thanks again,

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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