Q:

Subject: Post-Katrina Rental

 

Kerry,

I'm trying to figure out how to account for rental income I received for renting my house in New Orleans after the storm. My wife and I own our home in Gretna, Louisiana, just across the Mississippi from New Orleans. The West Bank. We evacuated to my parents' house in College Station, Texas, about two hours north of Houston. I'm a medical student at Tulane, and after the levees broke the school decided to set up in Houston for the year, so we have stayed in College Station in my parents' house. I drive to Houston every Monday and stay until the last class on Friday afternoon, sleeping on a pull-out coach in the living room of two very charitable roommates who are grad students at Houston area schools.

Our home survived the storm well, we only lost one shingle and a water spot in the kitchen ceiling; the house is otherwise fine. Since we already knew we couldn't move back until the summer of 2006 we made our house available to a couple who lost everything and told them to name their own price. They decided to rent from us at a rate of $800 per month, plus utilities. They rented for October, November, and December of 2005. We literally signed the checks over to my parents who have really bent over backwards to help us. My mom even postponed her PhD program at Texas A&M to watch our kids while my wife works. All this means is that our bottomline finances aren't substantially different than they would have been if we'd stayed in New Orleans and Katrina had never happened.

How do I account for those three months of rental in my taxes? Is this rental property? It's certainly my primary residence, but we had just moved to New Orleans in July after I got out of the Navy and before starting medical school. Did I rent 100% of the property for 60% of the time, which was really 25% of the year?

I have a degree in Physics, interned at NASA, and did rocket science. Taxes aren't rocket science. They're worse. Please help!

Very respectfully,

A:

You will need include Schedule E with your 1040 to report the rental income, as well as the expenses for your home during the time it was rented out, including depreciation.  Because of all of the allowable deductions against the income, it is very likely that you will end up with a net loss on your Sch. E that will shelter some of your other kinds of income.

It isn't difficult for any experienced tax pro to do this; but not something anyone else should try on their own.  You should definitely not try to prepare your own tax return.  Our tax system is such a convoluted fiasco that anyone grounded in serious logical thought processes (doctors, rocket scientists, et al) will have their brains fry trying to make sense of it. A good tax pro should be able to help you reduce your taxes by much more than his/her fee; so it's a no-brainer.

Good luck.

Kerry Kerstetter

Follow-Up:

thanks!

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/01/2006 06:44:00 PM Send this post: