House Calls: Dream House Annoyances
Ms. Lank: I have rental properties that I will pass down to my children. If they are not born landlords, they may sell the doubles. How is the depreciation I have deducted as an expense all these years recaptured? If they were to sell, will it be recaptured at all? Or will it be forgiven once I die?
I do my own accounting and want to be able to let them know what to expect if and when they sell one of the properties. I know you frequently recommend hiring an accountant. I wanted to ask you first and then ask an accountant if I want more specifics.
I am many years from passing away, God willing. -- R. W.
Answer: Your kids would inherit those properties with a new, stepped-up cost basis valued at the time of your death or within six months of it. The depreciation you took as deductions would be forgotten. That's in return for the real estate being listed at full value for possible estate tax.
Yes, you've heard it before. And I'll repeat it: As a landlord, you should have your own accountant and lawyer on tap. This might also be a good time to consult them about estate planning.
Dear Ms Lank: You recently wrote about expenses that a landlord can deduct. I own a property, and my son lives in it. He pays the utilities and maintains the property. I have asked my accountant whether or not I can deduct certain expenses, such as a roof replacement. He said no. I could not understand why, but he said something about affecting the cost basis. Could you help me with this? -- S.
Answer: Your accountant may have been referring to the calculation of the depreciation expense on income property, both on the original cost and improvements.
If you're not charging your son rent and not reporting his contributions as rental income, though, I don't see that you're a landlord at all. You have nothing from which to deduct expenses. That's not a rental property; it's just a house you happen to own.
Contact Edith Lank at www.askedith.com, at email@example.com or at 240 Hemingway Drive, Rochester NY 14620.Copyright 2017 Creators Syndicate Inc.