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Partial Second Home

Here's one that has me stumped.

OP owns a duplex - two condos. He lives on the top, rents out the ground floor, and uses the basement, which is technically the same lot as the groud floor condo.

Part of the second condo qualifies as a "second home" (though it's not really liveable space), because he uses it all year long. The other part does not, because he doesn't use it for more than 14 days (or really at all). But he really wants to be able to call it a second home - for obvious reasons.

I suspect he can't call the basement a second home because, well, it's not liveable. At the very least only a portion of the ground floor condo would qualify.

Any ideas? What am I missing?

Thanks.

Reply to
Stuart O. Bronstein
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The basement is not a second home. In order to qualify as a "home" it has to have cooking, sleeping, and toilet facilities.

With that resolved, I don't see the "obvious" reasons that he wants to establish the other condo as a second home. Regardless of whether the other condo is a rental property or a second home, he has to report all of the income he receives from the rental. (Exception for a first or second home rented for less than 15 days in the year.) Any situation other than a rental with profit motive without personal use will probably limit some of the expenses that would offset the income received.

So, why does he want this as a second home?

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

Thanks Ira. As far as I can tell the only thing that makes sense is that he's not able to deduct enough of his home mortgage interest, and that will allow him to deduct more.

Reply to
Stuart O. Bronstein

Maybe I don't fully understand the fact pattern, but this seems to me to simply be a question of adjusting the square footage used to allocate expenses between the two units. All square footage used for personal purposes should be allocated to the personal residence. Or stated another way, only such square footage as is used EXCLUSIVELY for rental purposes should be allocated to the rental.

I don't see that the concept of "second residence" is relevant to this situation.

That said, if the taxpayer has constant and unfettered access through the ground floor unit, it could rise the question as to whether it is truly a SEPARATE dwelling unit. In that case the entire structure would be treated as one dwelling unit and IRC 280A would apply to the rental portion.

MTW

Reply to
MTW

Thanks Mike. I heard back from OP - as I thought, this is about deducting mortgage interest. Apparently at this point he doesn't think he can (for whatever reason) deduct the portion of the mortgage interest allocated to the basement. He can afford to talk to a local CPA or EA, and I suggested that to him.

Reply to
Stuart O. Bronstein

Isn't the top condo together with the basement his "home"? And the lower condo a rental?

Reply to
Taxed and Spent

It's a condo so they are two separate lots. If you had two separate houses on separate lots (with separate mortgages) next to each other, and rented out one house but you used the back yard for that house rather than the tenant using it, is it part of your home for mortgage interest purposes? I don't know. And I haven't been able to find an answer from IRS publications. If you try to deduct the portion of interest on the other lot that you use as home mortgage interest, the IRS may just give you a problem with that.

Reply to
Stuart O. Bronstein

If these are two condominiums, even though they may be in the same physical structure, they are separate dwelling units and separate real estate entities.

While it isn't clear from what has been posted thus far, I assume that access to the basement isn't through the first floor unit, but through either a separate outside entrance or a common area hallway/stairwell.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

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