Expert: Dick Dennis - 2/14/2010

Question
This is a tough one. My father passed away at the end of June. He was survived by his wife. He owned two condo's at the time of his death. The first condo which was vacant and under contract for sale was left to my sister and I. My fathers wife quit claimed the property to us in January after the first sale contract expired. We have taken over the HOA fee's, electric, etc. and have listed under another short term contract with the same realtor. As can be expected in this market, nothing is selling. We have already dropped the price a couple of times. My father bought it unfortunately when prices were high. But we have priced it accordingly regardless of the loss of the initial investment. Both my sister and I are on a fixed income and the additional expense is a burden. We've talked of leasing or lease options to own etc. and are considering advertising as such on MLS.
First question: Can it be listed for sale and for lease at same time?
If it is listed on the MLS as a rental/lease, are these HOA fee's etc tax deductible to us? I've read about landlord deductions and they look promising but do we fit into that criteria? My sister believes that these expenses are deductible only if we own other properties and are making an income from additional properties. I thought the deductions are applicable based upon our regular non-landlord incomes.
In this market, it just seems to make better sense to hold on to the property until sales pick up again and report the expenses related as a loss until its either rented or sold.
Any advice in this area you can offer will be most appreciated.

Answer
First of all, Martina, I want to make sure when you meant the condo was "vacant and under contract" you meant it was LISTED for sale with a Realtor and not actually sold to someone and waiting for the closing. So, I will assume you meant it was on a listing contract, not sold.

Since you say your father bought the condos when the prices were high, I won't suggest you see a REAL ESTATE attorney to make sure you are not liable for any taxes. Since you'll be selling it at a lower price, most likely, then that is not a concern. You see, when you inherit a property or someone deeds it to you, you might be be also inheriting their tax basis on the property since you actually did not live in the property. Residences you have not lived in are considered capital assets by the IRS and treated differently.

As for listing the condo for sale and/or lease, it is up to your Realtor. Ask his/her advise since he/she will be marketing the property differently whether for lease or for sale. I would suggest you put the price of the condo down below any other comparable properties and get it sold. If you lease it, you have other problems as landlords you don't want right now.

Your HOA and other expenses may not be deductable until you actually have a tenant. Talk with a CPA or tax attorney to make sure your income bracket and lifestyle warrants that. I would actually have to sit down and discuss everything with you. I can only take you just so far. When it comes to tax expenses, I would be remiss if I didn't recommend you talk with a tax expert.

Further, until you own the condo for one year, the IRS may consider that your condo is only a property for sale and therefore expenses thereto not deductable until the property is actually rented out. Finally, if you are going to rent it out I strongly suggest you go to the library and learn what you can about being a landlord, especially a condo. Some condo associations have requirements that you must adhere to. So, you should talk to them, as well.

If you feel the market is going to turn around, then indeed keep the property and find a tenant. If not, try to have the nicest comparable condo available for the lowest price and you will get it sold and the headache off your hands. I do wish you well.

Dick Dennis
dixiedee@aol.com
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