Jay, it is interesting to see that people manage to have questions re-surface. Because of that, other people can be reading this, so I will point out a major change that has occurred since 2008. Fannie Mae and Freddie Mac have completely change how they look at converting a primary residence into an investment property when it comes to qualifying for a new loan. I know that jlv says that he has another primary residence that he owns outright, however if someone wants to go the other route to convert a primary, there are a few things that have to happen. First, the person must have 25% equity in the property. If so, they must show that they have received a security deposit that they have deposited, and that they have a lease. Otherwise, they must be able to cover all payments in their debt ratio. Some lenders don't allow rental income to be used unless it has been received for at least 2 years.... more
The question is in what year do you depreciate, is that correct? Asked my wife, the CPA, said you can't depreciate the building for personal primary use. So the year you start using as income property is the year you use. But how do you get a basis (value) for that year so you can depreciate. I am not sure that the IRS will use a estimated value without an appraisal or Broker Price Opinion. Now that is where you should talk to your CPA for guidance.. mine didn't know for sure.
Good Luck and Happy Renting in 2010... more