When taking a home sub2 and then leasing it out to a tenant / buyer for 3yrs and he/she doesn’t buy," rinse & repeat".
You setup another L/O agreement for 3 more years to the same tenant or find someone new to fill the house.
But as time goes by your taking depreciation on the house, “right”? Say you finally sell the house after 6yrs or 12yrs, how does recapture come into play here? After 12yrs could you lose money on the backend? Would a 1031 be the way to go after 12yrs? Opinions please.
Thanx, TOM(P.A)
i will try to help with what little I remember from accounting class etc. recapture is when you write off amounts above straight line. You are OK if you use straight line. If the building parts have a life of 20 years you can write off 1/20 each year. You can be creative too and straight line each part over different years. The carpet may be three years ad the roof 10 as an example. You are reducing you basis in the property and will be making a bigger profit on paper when you sell.
A 1031 is a great idea but takes some education and work to get done correctly. I would find an investor who has done one to help you learn the ropes. A CPA is well advised on all these matters os course.
The scenario you describe is a property flip. You buy the property then turn around and sell it (on a lease option) immediately. There does not appear to be any intent to hold the property for production of income, but instead the property is always for sale (the option can be exercised any time).
This, in my mind, is a dealer disposition and depreciation is not allowed. I know that this issue is ripe for debate and there may be ardent defenders on both sides of the issues. I think you just need to be aware of the potential IRS interpretation of your deal when they walk through the steps in the deal.
Damn you are smart. That is why I am not an accountant. I see your point clearly and can see how the IRS could and would make a case for dealer status. I did not even consider your points here. Seller beware as Dave stated.