Q-I bought a house in the inner city five years ago. I’ve since put $10,000 into it. But now, because of the neighborhood, I can’t sell it without taking a loss. I’m thinking of moving out and renting the house. Do I need a permit to rent? What tax deductions can I take as a landlord? What if I put more money into the rental house? Is that deductible?
A-Generally, owners of single-family homes do not need a permit to rent their property. Your community may, however, limit the number of unrelated persons who may occupy the property. Similarly, there may be some requirements for off-street parking. You can find out by contacting the appropriate municipal office.
As a landlord, in addition to deductions for mortgage interest and property taxes, you may depreciate the property over its remaining useful life. You also may deduct all costs for maintaining, advertising and operating the rental property.
Making additional major improvements to the property is not tax deductible but adds to your cost basis. Major capital improvements such as a new roof may be depreciated.
You should carefully weigh the risks of renting as compared to selling and taking your loss now. Renting is rarely an effective solution when a house’s value is less than cost.
Q-When my mother died, she owned land in Hawaii in her name only. There is no known will. I believe the land legally becomes my father’s. He had been married to her for 42 years. My father’s lawyer says a lot of legal work is necessary before the deed can be transferred to him. Your advice?
A-You need the counsel of an attorney experienced in estate matters. When a person dies without a will, they are said to have died “intestate.” Intestate distribution of assets varies by state.
The final settlement of an estate is not without cost. Tax returns must be filed, assets inventoried and valued and requirements of probate court satisfied. These matters are usually handled by an executor of the estate with the assistance of a qualified attorney.
In a prior column, I gave some incorrect information about the basis for depreciation when converting a personal residence to rental property. The basis for depreciation is historical cost plus capital improvements less any previously deferred gains from the sale of prior personal residences. This is called an “adjusted basis.”
———-
Have a question about real estate? You can write to George Karvel in care of the Chicago Tribune’s Your Place section, 435 N. Michigan Ave., Chicago, Ill. 60611.
