New Tax Law Concerning Turning Rentals into the Family Home
Real estate professionals need to be aware of the tax law change in July 2008. This new law goes into effect January 1, 2009.

Assume that Paul and Karen are getting divorced in December 2008. They own several rental properties. Karen is to keep one of them and she decides to move into rental.

It used to be that if Karen wanted to sell the house after 2 years, she could apply her full $250,000 exclusion against the gain. But now the IRS wants part of those capital gains taxes that were accrued during the time it was rental property, starting January 1, 2009.

Scenario #1: Karen moves into the rental in December, 2008. She sells this property in March 2011. There is a $240,000 capital gain which she is able to wipe out with her $250,000 exclusion because the house was not a rental as of January 1, 2009.

Scenario #2: Karen does not move into the rental but continues to keep the property rented out as she wants the rental income. Four years later in 2013, she moves into the rental. Two years later in 2015, she sells this property. There is a $240,000 capital gain. She is only able to able to wipe out 2/6 ($80,000) of the capital gain with her exclusion. She will have to pay taxes on the remaining $160,000. And she will also have to pay tax on depreciation recapture.

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From the Real Estate Divorce Specialists Newsletter
Email: info@realestatedivorcespecialist.com
Web: RealEstateDivorceSpecialist.com

Well isn't that just dandy!

I own some rental properties, and I intend to sign more than one rental agreement in the next few years. Of course, being a landlord isn't quite what it once was, where you collected rental income, and if a tenant didn't pay, you evicted. Alas.

And just think, I can't even blame that on Obama's big-government philosophies, because that was implemented by the Bush Administration's big-government philosophies.
Is there anywhere for someone to turn in this country who believes in smaller government? Certainly not the two major parties.

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Brian
Rental Agreement