Inman

Real estate investor has trouble shaking depreciation recapture tax

DEAR BOB: If I move for 24 months into a rental house I’ve owned for 15 years, can I then sell it as my principal residence to avoid the recapture tax on all the depreciation I’ve deducted? –Elinor W.

DEAR ELINOR: Sorry. The only way to avoid the dreaded federal depreciation 25 percent recapture tax is to make a tax-deferred exchange for a qualifying replacement investment or business property of equal or greater cost and equity.

Purchase Bob Bruss reports online.

Converting a rental house into your principal residence will avoid capital gain tax on up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return). However, the portion of your capital gain that is attributed to the depreciation you deducted during your ownership years remains taxable at the special 25 percent federal recapture tax rate when you sell the property. For full details, please consult your tax adviser.

CAN HOMEOWNER PARK A “CAMPER VAN” IN FRONT OF HIS HOUSE?

DEAR BOB: I live in a community with a homeowner’s association protective covenant. It says “campers” may not be parked on the homeowner’s property or on the street. The street is public. There are no restrictive entry gates. There are no city restrictions on parking on my street. Do you think I can legally park my “camper van” on the street and win the issue in court? –Mel F.

DEAR MEL: Are you 100 percent certain the street in front of your house has been deeded or dedicated to the city? If it has, then the homeowner’s association cannot prohibit you from parking your camper van on the street.

However, if the city does not “own” the street, although it is open to the public, the homeowner’s association is responsible for its maintenance. That means they can impose the rules.

I’m sure you don’t want your neighborhood homes to decline in value by having lots of ugly campers parked in driveways and on the street.

When you bought your home, you agreed to abide by the CC&Rs (covenants, conditions, and restrictions). Find a nearby storage facility to park your camper. That will probably be much cheaper than paying fines and possibly being taken to court by your homeowner’s association. For more details, please consult a local real estate attorney.

CAN LANDLORD PROHIBIT SMOKING INSIDE RENTAL HOUSE?

DEAR BOB: Can I include a clause in my rental agreement for a house prohibiting smoking? –Winston R.

DEAR WINSTON: I am not aware of any state law that says a landlord cannot prohibit smoking in a rental house or apartment. However, you have no legal right to enter the property to enforce such a restriction except upon reasonable notice that, in most states, is interpreted to be at least 24 hours’ advance notice. For more details, please consult a local landlord-tenant law attorney.

The new Robert Bruss special report, “2006 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Realty Investors,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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