real estate investment

We have a house purchased in 2005. We've never lived in the house, but our wife's parents lived in it for a while. After the parents moved out in 2007 we decided to remodel the place and eventually sell it. Since the property is not our home and not a rental there are few examples about our tax situation.
We have sold the house and are unsure how to treat the gain/loss and how to treat remodel expenses. Should we use schedule E for real estate related expenses? Or do we just treat this as a capital asset and use Schedule D, figuring the gain/loss from our basis and sales price?
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Reply to
rsiblente
It is not a schedule E item.
Use schedule D long term, and use your cost plus any capital improvments plus costs of sale as basis.
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ArtKamlet  at  a o l dot c o m  Columbus OH  K2PZH
Reply to
Arthur Kamlet

Agreed
Would a loss be recognized? This seems to me personal-use property for which a gain would be taxable and a loss would have zero tax effect.
Phil Marti VITA/TCE Volunteer Clarksburg, MD
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Reply to
Phil Marti
sounds to me like it turned into property held for investment.
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Reply to
Pico Rico
I agree with Phil - personal use property: LTCG taxable, LTCL disallowed. The only use of the property was for family members. Perhaps, and I'm not even sure this would float, if there had never been any use of the property, it might be argued an investment property.
Ira Smilovitz
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Reply to
ira smilovitz
only use of the property was for family members. Perhaps, and I'm not even sure this would float, if there had never been any use of the property, it might be argued an investment property.
I agree with Phil and Ira.
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Reply to
Bill Brown
only use of the property was for family members. Perhaps, and I'm not even sure this would float, if there had never been any use of the property, it might be argued an investment property.
use to another use. Happens all the time. The Treasury has never published rules on how one converts personal use property to investment property. However, if one looks at the Section 1031 like-kind exchange rules, you find that personal use property that ceases to be used as such and at least two years elapse, can be treated as investment property (note there are other rules that also have to be followed). In addition, the rules on cost basis for depreciation actually tell you what to use when you convert to investment property. I have to conclude that as the parents vacated the property in 2007 and the property has had no personal use and has not been rented, it has been converted to investment property and capital losses would be allowed.
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Alan
http://taxtopics.net
Reply to
Alan
The only use of the property was for family members. Perhaps, and I'm not even sure this would float, if there had never been any use of the property, it might be argued an investment property.
The only facts presented in the OP suggest the watch was personal use. Absent additional facts. I stand by our (Phil, Ira and me) response.
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Reply to
Bill Brown
but
improvments
Wrong. It's personal use property other than a prinicipal residence. Property "held for investment" is not used while being held. This was.
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Reply to
D. Stussy

[earlier messages snipped]
I would argue that in order to change personal use property to anything other than personal use, the taxpayer has to take some positive action, other than ceasing to use it.
With regard to Section 1031 exchanges of ex-personal property, it's precisely the other requirements that are essential, not the taxpayer's assertion that what was personal property is no longer such.
The depreciation argument is also a red herring. Had the taxpayer decided to convert the property to a rental and made the necessary efforts to find a tenant, etc., then depreciation would be allowable and the property would be investment property. Again, it's the other facts, not the taxpayer's assertion, that are determinative.
Ira Smilovitz
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Reply to
ira smilovitz
This does it for me:
"After the parents moved out in 2007 we decided to remodel the place and eventually sell it."
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Reply to
Pico Rico
but
moved
it.
and
asset
sales
improvments
disallowed. The only use of the property was for family members. Perhaps, and I'm not even sure this would float, if there had never been any use of the property, it might be argued an investment property.
How does one prove "use" as an investment property when there was prior use of a different kind?
If an investment loss (LTCL) were claimed on its sale, I see that as an issue headed to the Tax Court for resloution.
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Reply to
D. Stussy

No, it was not used after its use ended. That is why it became property held for investment.
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Reply to
Pico Rico

The same way you prove anything. In this case, the lack of use as anything other than as property held for investment, and the intent of the owners to remodel and sell it.
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Reply to
Pico Rico

It's a matter of grammar. Did he mean that in 2007 they decided to sell it eventually? Or did he mean that eventually (e.g. recently) decide to sell it?
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Stu
http://DownToEarthLawyer.com
Reply to
Stuart A. Bronstein

When someone moves out of a house and puts it up for rent, is it still personal use for, say, six months if it takes them that long to find a tenant?
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Stu
http://DownToEarthLawyer.com
Reply to
Stuart A. Bronstein
Well, I read what he wrote. Of course, he could have written it incorrectly. But he did NOT write "After the parents moved out in 2007, eventually we decided to remodel the place and sell it." Or "After the parents moved out we decided to remodel it. Eventually, we decided to sell it."
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Reply to
Pico Rico

We don't know if he wrote it correctly. What he wrote was, "After the parents moved out in 2007 we decided to remodel the place and eventually sell it."
They decided to remodel and sell it after the parents moved out. They could have decided to sell it immediately after the parents moved out, and that's the way I read it. At that time they immediately turned it into investment property - they remodeled it with an eye toward selling it at a profit.
Stu
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Stu
http://DownToEarthLawyer.com
Reply to
Stuart A. Bronstein

There's a lot of activity in this thread. But the central question is did you use the property (personal use or rental) after 2007? We can't really tell from the above.
When you filed 2007, 2008, 2009, 2010 returns did you deduct the property tax as real estate tax or investment interest?
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