Tax write off on business property?

Question

I purchased a building in a unzoned area 2 years ago. I used it as a primary residence for those two years. I have since purchased another property that I am living in now. I would like to use the original property for a business. The tricky part is that the original property is owner financed and roughly half paid off. Can I deduct any part of my current mortgage or original purchase price from my future taxes?

Answer 1

You are converting a personal residence to a business. If it is used 100% for business, the mortgage interest is fully deductible.

Depending on the business use, you can depreciate the property (but not the land) for either 27.5 years (residential rental property) or 39 years (nonresidential). The amount you can depreciate is the smaller of your investment in the property (purchase price plus improvements) or the fair market value when you convert it.

The owner financing, and the fact that the mortgage is partially paid off, don't effect the deductibility of the mortgage interest.

Answer 2

Yes. You have a couple deductions available to you. First, you can depreciate the building using the lesser of the current value or your purchase price as your basis for depreciation. (be sure to deduct the lot value) Second, the interest your currently paying will be deductible, as well as insurance and repairs. All this advice assumes your using the property in the business. If you sell the property in the next 3 years, you may be able to avoid paying tax on appreciation, if you lived in it a full 2 years. You should talk with a CPA or tax professional in your area to help you with your taxes.

Answer 3

Check with mortgage holder to see if any problems exist there. If it is in unzoned area you should be able to use it for business. Date of start of business is date of conversion to business use. Original purchase price can be used to determine amount to depreciate; you have to break it into building, which can be depreciated; and ground, which cannot be depreciated. Your property taxes become a business expense along with utilities, insurance, interest paid on loan, and yadda. Good luck.