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Tax Law (Questions About Taxes)/Rental of Prior Residence


We moved to a new home in another state, but used the old one from time to time. In July, 2011, we emptied the old house and put it up for sale. No buyers, so we rented it out beginning in September, 2012. There is a mortgage on the old house (not the new one). What mortgage interest can I deduct on Schedule E for 2012? How can I use depreciation? And, if the house sells (say in late 2013 or 2014), will I lose the one-time capital gains exclusion?


Thanks for your question.

You can deduct the mortgage interest on Schedule E for the interest during the time it was a rental property.  The other interest would go on Schedule A.

You should take depreciation on the property based on the lower of the value at the time it became a rental and your basis (cost) in the property.  Be certain to pull out the value of the land prior to taking depreciation.  If you don't take depreciation, the IRS will reduce the basis for the amount that you should have taken, so go ahead and take it.

When the house sells you must 1) recapture the depreciation, meaning you pay tax at regular rates on the depreciation taken up to the amount of gain onthe sale and 2) pay tax at the capital gains pro rated for the time it was a rental property.

The exclusion for the sale of you primary residence is not a one-time thing, you can do it as often as every two years, provided the house sold was owned by you and you lived in it as your primary residence for 24 of the 60 months prior to sale. You can exclude gain of up to $250,000 or $500,000 of gain married filing jointly.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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