Deciding to Stay or Rent

I noticed a few major oversights in the Aug. 8 article (“Sell, Rent or Stay? Homeowners Losing Equity Try to Plug the Gap”) about whether a homeowner should convert a personal residence into a rental when the homeowner will take a loss.

As many people are aware, the loss from the sale of a personal residence is not deductible for federal or California state income tax purposes. By converting the personal property to a business property, via a rental, the loss becomes fully deductible in the year of sale.

Yes, rental property is a hassle, so hire a property management company. A reputable company will screen the tenants, check the property, collect the rents and put up with the hassle. Not all tenants are bad, and the loss (if any), including depreciation is deductible (within limitations), whether you itemize or not.

Assuming your property cost $285,000 in 1990 and you put $25,000 in improvements, landscaping, spa, etc., your tax basis is $310,000. In Southern California that property may only sell for $225,000 today, less the cost of the sale, approximately $15,000. That’s a loss of $100,000. If the homeowner converts the residence to a rental, he or she can save approximately $28,000 in federal taxes and $5,000 in state taxes upon selling at a loss. That’s worth a little hassle to me!

If you have a choice of selling [at a loss], renting or staying, one should definitely rent or stay.

MYRNA J. LIVINGSTON

Huntington Beach