Monthly Archives: October 2015

Tax Rules – Converting Residence to Rental Property

If you’ve made the decision to rent your primary residency instead of selling it, there are tax implications to be aware of. The tax code in this area can be complex, so it’s important to understand the rules and regulations upfront before you take the plunge.

Residential Home in NYC2First off, a residence is considered primary when you live in it full-time and it is not rented out for more than two weeks in any given year. Conversely, a residence is considered rental property if you use it personal use for no more than two weeks of the year or 10% of the days it is rented.

Tax Implications

Once you have converted your primary residency to a rental property, you will be required to report any rental income as taxable income. On the reverse side, you will also be able to deduct expenses for repairing the property as well as general maintenance.

In addition, the IRS does allow you to use depreciation of the property to offset income received on the property as well as taking other deductions such as property taxes, insurance, mortgage interest, utilities, and association fees.

Any costs over the amount of the total rental income cannot be deducted unless you meet the following conditions:

  • You actively participate in all real estate activities for the property
  • Your adjusted gross income is under $100K for the year
  • Your total losses for all real estate activity does not exceed $25K for the year

The basis for depreciation for rental property is the lower of your adjusted basis – capital improvements plus purchase price – or the fair market value. The property must be depreciated over a 27.5 year period. Also, you are only allowed to depreciate the portion of the residency that is used for income generation.

If you’d like to avoid tax consequences and are looking to hire a CPA, call us at 212-631-0320 and ask for Mark Feinsot.  We are a New York City CPA Firm with two convenient offices in Midtown.

Supreme Court Decision on Same Sex Marriage Impacts Estate Planning

Supreme CourtWhile being able to marry your partner regardless of sex may seem a symbolic gesture to some, with that right comes many new legal rights as well that have a direct impact on estate planning. These changes should be discussed with your human resource department or estate management planner.

From wills to end-of-life-documents to trusts to planning funerals and even having access to their partner in the hospital, all have changed with the Supreme Court’s ruling allowing same sex marriage in all fifty states. Before this ruling, same sex couples’ rights could come and go when they crossed state lines or be taken away by future state rulings.

Now, all of the normal rights and protections given to opposite sex married couples are afforded to same sex couples. This includes state benefits, federal benefits as well as pension protection and spousal rights of inheritance.

In addition, same sex couples will now be able to form a joint marital trust and no longer be required to pay double inheritance taxes. Also, they will enjoy spousal rights of inheritance as well as being able to act as executor or guardian if their partner were to become incompetent before death.

Finally, for those who have children or adopt children, both partners can now sign birth certificates or adoption papers meaning that if one partner died the other does not lose custody of their children due to not legally being recognized as a parent of the child.

For years, estate planners were put in the position of telling same sex married couples that there were two sets of rules, and the protections of marriage did not apply to them. This is no longer the case. With the Supreme Court’s ruling, same sex married couples have all of the same rights, protections, and responsibilities of traditional married couples.

To learn more about estate planning changes that apply to your situation, call Mark Feinsot CPA at 212-631-0320.  Our firm provides estate planning for small business owners and high net worth individuals.