All Forum Posts by: Brian Dela Cruz

@Brian Kohtz

Yes, you can potentially claim the property as a rental in 2024, but it depends on when it was "placed in service" for rental purposes. The IRS considers a rental property "placed in service" when it is available and ready to rent, not necessarily when the first tenant moves in. If you listed the property for rent, advertised it, or had it available for lease before December 31, 2024, it could qualify as a rental for 2024 tax purposes. This is the answer in general. Talk with your tax pro or reach out to my company for help.

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@John Chapman

Typically, this would be treated as a sale, unless you reinvested the insurance proceeds into another rental property within two years (by either rebuilding or replacing), you can defer the tax under IRC Section 1033. 

The replacement property must be similar in that it is another rental property. If you do not reinvest all the proceeds, any excess amount not reinvested is immediately taxable. If you don't rebuild or replace, the transaction is taxable. Meaning, if you take the money only, you would have depreciation recapture from your cost basis up to the original purchase price of the building (not including the land cost because it wasn't depreciable), plus a capital gain up to the insurance proceeds.

Hope this makes sense. In general, these are the rules. Consult your tax pro for more details or greater clarification, or contact me. I would be happy to help.

Being unmarried with your business partner presents complexities and problems. 

How will you split income, deductions, and the mortgage? 

Beyond that, will you operate as a partnership?

If you two can no longer get a long and want to separate, how will you handle that separation peaceably?

If one partner wants to exit or passes away, what happens to the property or properties? 

These are the kinds of questions business and tax planning would help you to explore, think about, and answer. It is supercritical to do this ahead of time to have a plan A, B, and C. Your options are greater ahead of the transaction as opposed to when the transaction has already been entered into.

Best of luck to you!