bought a new home, could not sell the other

I bought a new home in KS and kept my one in CO becuase the market was soft and I had hoped within a few years I could sell it for more.

I'm renting the one in CO now.

For my '08 taxes what do I need to do?

I'm aware of the capital gains exemption for homes lived-in 2 of 5 years. So I have 3 years to sell my CO home (or move back, etc). I assume it's in my best interest to keep that capital gains exemption (unless, of course there is no gains! ouch!).

Anyway, I'm paying 2 mortgages, sets of taxes, and insurance. I'm renting the CO home to cover my costs. I understand I can take the rent as income and then deduct the interests, property taxes, and insurance as costs. I also understand I can deduct depreciation. But, again, I don't think I want to lose my capital gains exemption.

How do I sort our the best solution? Or so I have any options?

Reply to
coloradotrout
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You now have a rental. You report the income and expenses, including depreciation, for the rental on Schedule E of the 1040. See Pub 527. It sounds like you may also have moving expenses for 2008. See Pub 521.

You should consider hiring a preparer for your 2008 returns. Once you get a rental set up it's pretty easy, but the front-end work is a major PITA.

Reply to
Phil Marti

The only thing I will add to Phil's reply is:

  1. Your rental is located in CO. As such you will have to file a CO tax return for every year you have that rental. You must also report the rental on your KS tax return. See page 16 of the KS K-40 instructions for information on obtaining a tax credit for taxes you paid to CO on income that is being taxed by KS.
  2. You also need to be aware that if and when you sell the CO home and you are still eligible for the main home capital gains exclusion, you will not be able to exclude from income any amount that is attributable to depreciation taken or allowed. See page
18 of IRS Pub 523: Business Use or Rental of Home.
Reply to
Alan
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Reply to
Russ in San Diego

Alright.. so I have a rental, and must:

1) declare rent as income (though the deposit is not - correct?) 2) offset income with expenses (interest only, insurance, state/county/ city property taxes, and the new one, depreciation, and other costs for maintenance, etc) 3) file income forms for both KS and CO.

If the CO house's costs (interest, taxes, insurance, maintenance) offset the rent, will I show no income for CO? I know this one year, I will have a part year income in CO (mid Aug) and KS (mid Aug - Dec).

So I will real the publications.

Roughly, how do I figure depreciation? Is there some advantage to using a higher or lower valuation? Let's say I sell for 400 and bought for 300, so my gains is 100. If I had bought and sold in short time, I'd not be taxed at all on the 100. But now let's say I sell in

2 years, so I have depreciated some amount. Do I base the depreciation on 400? 300? some other. SLD would be like 400/40 = 10 per year ( I know I'm a bit off.. ). So in 2 years how does that 20K come back to haunt me? Or does it really? Maybe not because I've reduced my income by that 20K in those two years?
Reply to
coloradotrout

Security deposits, kept ? Do not include a security deposit in income when it is received if the taxpayer plans to return it to the tenant at the end of the lease. However, if the taxpayer keeps part or all of the security deposit during any year because his tenant does not perform under the terms of the lease, include the amount kept in income in that year. If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Include it in income when received.

Yes, the 20k comes back to haunt you. It's called recapture. You can google for it. I think the technical term is "unrecaptured section

1250 gain".

Residential property is depreciated over 27.5 years. It uses straight line depreciation, and the mid-month convention.

There's also a limit on the rental loss you can claim. If you're not actively involved in the rental, then you can claim no loss. However, any loss gets carried over to future years or when you sell the house. If you're actively involved and your AGI is low enough, then you can claim a full or partial loss, and the balance gets carried over to future years.

Reply to
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