Short-term Rental/Personal Use Property
We have a primary residence and one rental property already and we cashed out on a refi on the rental to buy a third property. We intended to live in the new house immediately, but found that it needed some major repairs and the floorplan didn't really suit us that well. So, our intention now is to make the necessary repairs and rent the new property for a year or two, renovate it, and then make it our primary residence.
Here's where I'm having trouble deciding what to do. We live next door to the new property and plan to make use of most of the adjoining yard and possibly the garage as we rent the house. We may also go ahead and build a new garage as per the plans for the future renovation and use that ourselves. Since we will be using much of the new property ourselves, how should we handle the reporting of the property for tax purposes? Does it need to be converted to income property on the tax rolls or can we keep it at the owner-occupied rate since we will be using a good portion of it? I'm thinking that people who buy duplexes and live in one side would be in a similar situation tax-wise. We may only have the house rented for one or two months in 2004 (if we are lucky) since we are still working on the repairs. We want to save money, but want to do things right and not face the risk of future penalties on taxes that were not reported or paid correctly. Any advice would be appreciated.
It should be treated as a rental property. Legally, however, only the portion or the percent of the property actually used for rental activites, should be claimed as such. That is, only the part occupied by tenants may be depreciated, have interest interest expense claimed, and have repairs expensed against.
I'm not concerned about how to report on my tax return, but the state property tax rolls. Property is taxed at an owner-occuppied rate or an investment rate. The investment rate will be about double the owner-occupied rate.
I need to know if there is some way to figure out if I have to change the reporting on this property to investment or if I can leave it at the owner-occupied rate since I'll be using a lot of the property myself. Guess I should just call the state tax office.
If you receive rental income from the property and you do not occupy the property (live there), it is rental property for property tax purposes.