Not Enough Parking Available for Units

QUESTION: We own a property which is zoned for up to four apartments. There is a house at the front of the lot where we live. The three additional units will be built toward the rear. However, the city says we must provide three additional parking spaces and there is no way we can provide more than two parking spaces. The apartments will be built above the two new parking spaces and the one where we currently park our own automobile. Is there any way to solve this problem?

ANSWER: If your architect cannot figure out a way to provide the required three additional parking spaces, you can ask the city for a zoning variance to grant the permit for three apartments with only two parking spaces. But you should be well prepared, such as showing how attractive your new building will be. Be sure to provide documentation for all the reasons why the variance should be granted because obtaining a zoning variance is not usually easy.

Less Adds Up to More in Profit on a Loss

Q: In 1990 I sold a rental property for less than I paid. It had declined in value due to neighborhood economic changes as the area went downhill and became a prostitution area. But my CPA who prepared my 1990 income taxes calculated I owed profit tax because he says I sold for more than my building’s depreciated book value. How can this be?

A: Your CPA is correct. Real estate is one investment which can be sold at a loss, yet it produces a taxable profit.

For example, suppose you bought the property for $100,000 and depreciated it $1,000 for each of 10 years down to $90,000 depreciated book value. If you sold it for $94,000 you would have a $4,000 taxable profit ($94,000 minus $90,000), even though the property sold for $6,000 less than the $100,000 you aid.