rental tax question

OK basis is 60 + 16 = 76

Depreciable amount is the portion of the 76 allocatd to the building. You would have a separate asset for the land, and would allocate the rest of the 76,000 (modulo any Sec 1245 -- e.g., appliances) to land.

Nope.

Unless you default on the loan.

Only if you aren't planning to pay it back.

Regards, John Levine, snipped-for-privacy@iecc.com, Primary Perpetrator of "The Internet for Dummies", Information Superhighwayman wanna-be,

ex-Mayor"More Wiener schnitzel, please", said Tom, revealingly.

No, but you cannot deduct all the interest as an expense against the rental property unless the missing $14,000 ($30,000 proceeds minus $16,000 improvements) was also used on that property rather than for other purposes.

See IRS Publications 527 and 550.

Do repairs add to the basis? I thought only capital improvements add to the basis, whereas repairs are written off right away.

Even that might not be income because of the debt forgiveness law. Not sure if that law applies to commercial real estate property though.

I read into this 16,000 (on a 60,000 property) that it's more than simple repairs. For 16,000 I assumed it went to improve the property, but I agree, more detail might be needed.

Does not apply to business property.

It's somewhat unclear if rental property would qualify, but debt forgiven on real property used in a "trade or business" can qualify for the reduction (Form

982). However, taking the reduction will also reduce your basis. Art may be referencing the new law, which only applies to your primary residence.

What if you rent a room in your primary residence, or use it as a small office? Then the debt forgiveness only applies to the portion of the home used for personal reasons, by square footage? So if your home is 3000 sq feet and 500 rented out, then 500/3000 of the forgiven debt must still be reported as income?

In general debt forgiveness is taxable income unless you are so broke that the IRS won't be able to get any money out of you anyway. So if you have to ask the question, the answer is probably not the one you want to hear.

Stu