Discussion:Multiple homes - looking for ideas
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Discussion Forum Index --> Tax Questions --> Multiple homes - looking for ideas
Michaelstar (talk|edits) said: | 5 June 2008 |
| Taxpayer owns first home in California and decided to move to Las Vegas, Nevada. He buys his second home (NV#1)in March 2005 and elects to keep CA home as a second home. Wife dies in NV#1 and t/p feels he can no longer live in this home. He purchased NV#2 in June 2006 (which now becomes his primary residence in Las Vegas).
Put NV#1 on the market for sale February 2006. NV#1 stays on the market until November 2007 when after falling out of escrow twice he decides renting it is as the only way to help pay the multiple mortgages. At one time 27 homes on this street (NV#1) are either in foreclosure or for sale. NV#2 put on market for sale February 2007 while living in home. In October 2007 he buys NV#3 and then also puts NV#2 on the market as a rental believing there is no way it will sell under the current market conditions in Las Vegas. The taxpayer finally has rental contracts signed on NV#1 and NV#2 as of March 15, 2008. Here is where I am looking for your ideas and input. What to do with the mortgage interest on NV#1 from July 2006 until the time it is rented in March 2008. This home was not put on the market as a rental until November 2007. Also, what to do with the mortgage interest on NV#2 from October 2007 until the time it is rented in March 2008. | |
Death&Taxes (talk|edits) said: | 5 June 2008 |
| And does CA have a mortgage? | |
Michaelstar (talk|edits) said: | 5 June 2008 |
| Yes - CA home - acquisition debt of $250k and $100k equity utilized, $24k balance treated as personal . NV#1 - $403k acquisition debt, NV#2 - $535k acquisition debt and NV#3 $680k acquisition debt. Note -edited dates in original question above. | |
| 5 June 2008 | |
| Deduct interest as rental interest as soon as he intended it to be a rental. Take 2nd home interest on another one (The one with the highest interest). All remaining interest would be non-deductible. However, some would argue that it can be investment interest. I don't think I told you anything that you didn't already know. Were you thinking something different? | |
Death&Taxes (talk|edits) said: | 5 June 2008 |
| As I read this, there is very little interest now paid on the California house (24K) so for 2006 I think I would disregard that and either call it personal, or do the Search and see if it could be investment interest. For 2006 I would treat N1 as a residence and N2 as second residence.
For 2007 it would seem he would have his choice which to claim as second residence since he used N2 more than 14 days as a residence, and from what I read, neither was actually rented, for as I read Sec 163, it is the actual having a tenant that makes it a rental for this purpose, not putting it up for rent. It would seem he should claim 1 & 2 as his two allowed residences, discontinuing both when he turns 1 into a rental in November and 2 into a rental. On those dates, the interest could become rental. I am not clear whether he can substitute #3 as a personal residence until 2008. These are half-baked thoughts, Michael, so that it for what it is worth. | |
| 5 June 2008 | |
| Death, See Solomon's post at Discussion:Available_for_rent_strictly_defined | |
Death&Taxes (talk|edits) said: | 6 June 2008 |
| What I was saying is that the fact they were converted to rental would not rule out either residence being claimed as a personal residence for mortgage interest purposes, since apparently he had no renters. This is Section 163(h)(4)(A)(i)(I) & (II). The question would be would N1 qualify as a second residence from January until it was put up for rental; I believe it would. | |
Death&Taxes (talk|edits) said: | 6 June 2008 |
Michael: the thought strikes me that the man should buy two or three more at depressed prices and dollar cost average down. 
| |
Michaelstar (talk|edits) said: | 6 June 2008 |
| David & Incognito - I appreciate your thoughts and comments on this post. Your line of thinking is about what I had concluded but due what I see as interest expense not being able to be utilized, I was and am looking for confirmation and of course possible ideas around this. I do not believe any of it can be classified as investment interest so that is a dead avenue in my mind. This t/p has been bitten by the downturn in real estate although he was not buying homes as a speculator and Las Vegas as it turns out is the city with the zip codes with the most foreclosures in the country. Bad timing to say the least.
I saw a post this morning that I need to look further into but as of now, I am unsure how to wrap this into my situation. Here is the link: http://www.taxalmanac.org/index.php/Discussion:Auditor_denying_investment_interest but this confirms my thoughts on why nothing here can be claimed as investment interest which all of us already knew. You know David - the t/p said exactly that. If he had another $500k sitting in the bank, he would go out and buy up some of the foreclosures but up until the two homes were rented, he was paying 4 mortgages on his income and was not breaking even with the cash flow as one might imagine. Thanks again and please let me know if anything else comes to mind. | |
Death&Taxes (talk|edits) said: | 6 June 2008 |
| I hoped you'd find that link, Michael.
You had me drawing timelines. | |
