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special case duplex tax implications?

Posted: Thu Mar 14, 2019 12:28 am
by BilboSmaug
So it seems fairly clear cut that if you buy a duplex and rent out half of it while occupying the other half that you can deduct the usual investment expenses for half of the property (e.g. property tax, mortgage interest, depreciation, divided by two, obviously).

1. It also seems that you can occupy an investment property later, turning it into a primary residence. Is the only "clawback" for this for the depreciation claimed earlier to be paid back to the government at the max 25% rate, upon sale?

2. It also seems that you can buy a vacant lot as an investment property and claim similar deductions. So can these investment deductions be claimed if the 2nd unit is vacant (no rental and no occupation)?

I ask because I don't intend or have the funds to fix up the other half of my duplex for probably two years, so it will be vacant (the upstairs) while I live downstairs. If I sold in two years, I would have bought an extra unit just to be more heavily invested in the real estate market, sounds like an investment property to me. Thanks for all the help!

Re: special case duplex tax implications?

Posted: Thu Mar 14, 2019 4:22 pm
by unclescrooge
Here's a good example of what partially deducting your house looks like: https://michelecagancpa.com/blog/calcul ... reciation/

I recently deducted the partial use of home on a schedule E. It was pretty straightforward with TurboTax. I'm in a 32% marginal tax bracket so if depreciation is recaptured at 25%, I still come out ahead.

Regarding a vacant lot bought as an investment, there are no improvements, so there would be nothing to depreciate. So if there is no income and only property tax to deduct, then in theory you should be able to deduct those. But I'm not a CPA and have never done so.