Depreciation AND Sub-2
Reading a couple posts on depreciation gave me a question i'm going to run into this tax year. Ex:
Take a prop sub-2 for $52k loan and give the owner $50. Pay $6k to make the loan current, now the loan is for $46k. I have lease optioned the prop to a new buyer for $70k with no Down payment(property was in terrible condition, he is repairing it well). He is paying $750/month, loan payment is $450. $200/month is rent credit. Can I depreciate this property, and secondly, what price can I depreciate, $52,050 or only $50? Lol.
It appears if you are putting $50 on a purchase agreement, then the purchase price is only $50 and therefore no depreciation is worthwhile.
Thanks,
Chase
Yes I plan on talking to my tax man but I figured it's a viable question as others might wonder about it as well. It is not exactly dealer status, though, since I am not flipping it, only LOing it. I am taking title and renting it, basically. It was my thought that to be a dealer activity it would have to be a purchase and flip, whereby title would change quickly again.
Quote:
On 2004-11-13 23:15, NewKidinTown2 wrote:
It would appear that you are engaged in a dealer activity wherein depreciation is not allowed. Best to consult a licensed tax professional rather than relying on the advice posted on a website from someone you don't know and whose credentials might be lacking any authority for the information given.
<font size=-1>[ Edited by NewKidinTown2 on Date 11/13/2004 ]</font>
Quote:It is not exactly dealer status, though, since I am not flipping it, only LOing it. I am taking title and renting it, basically. It was my thought that to be a dealer activity it would have to be a purchase and flip, whereby title would change quickly again.Ruman,
This is the reason you need to speak with a licensed professional experienced with real estate dealer transactions. Not all CPAs have this experience, nor are they comfortable with the dealer disposition topic.
You said that you took the property subject to and leased optioned to a new BUYER. If we agree that flipping property is a dealer activity, then how are you not engaged in a dealer activity?
You acquired the property with the intent to sell for profit. The fact that you immediately offer the property for sale is evidence of your intent to sell. The lease option is merely a technique to facilitate the sale. Indeed, throughout the entire option period, the property is for sale. If the property is always for sale your strategy is a dealer activity. The length of time you hold a property pending sale is really irrelevant.
The IRS defines a dealer disposition asany disposition of real property held primarily for sale to customersNotice that there is no mention of a holding period limitation, only that your intent is to sell.