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What are the tax implications of renting our home?

May 29, 2002


Subject: Primary residence into rental
From:  Kristin
Date:  Wed, 24 Apr 2002

Mike,

My husband and I just purchased our first home four months ago. As luck would have it, we both received job offers to move overseas temporarily. Our work assignments would take us out of the country for 2.5 years.

Due to this, we are considering renting our home. I understand there are several things we would need to do. Would you recommend a checklist of items we should consider? I'm wondering if we need to change our homeowners insurance, mortgage terms, etc. Also are there special tax implications if we turn this back into our primary residence at the end of our 2.5 year assignment? What if we decide to sell upon our return?

Thanks for your assistance,
Kristin

Answer

Date:  April 2002

Hello Kristin,

I can't give you a complete answer in this space. I recommend that you meet with a tax advisor. Here are a few references and items that might help. (Get IRS publications from the IRS web site at www.irs.gov.)

  • Call your insurance agent about insurance requirements.
  • In California, there is a small property tax reduction for owner-occupied property. You should consider notifying the county assessor if your property is no longer eligible.
  • Your mortgage probably will be unaffected. You might need to consult with a real estate lawyer about this.
  • Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad
  • Publication 523, Selling Your Home
  • Publication 527, Residential Rental Property
  • Publication 925, Passive Activity and At Risk Rules

Going abroad is exciting, but tax-wise, it's a mess. Be sure to find a tax consultant who is familiar with the rules. Your employer may help out with this. The Big Five firms have departments devoted to international tax practice.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

What are the tax implications of renting our home?

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