Long-Distance Trade Qualifies for Deferral

QUESTION: When we moved away from Houston about three years ago the market for home sales there was dead, so we rented our house to tenants. Now those tenants want to buy our home at a price that will give us a modest profit of about $10,000. How can we make a tax-deferred trade of that house for a small income property, such as a duplex, triplex or fourplex here?

ANSWER: Your long-distance trade situation is perfect for a Starker delayed tax-deferred exchange, as authorized by IRS Code 1031(a)(3). Just sell your house, have the sales proceeds held by a third party intermediary, so you don’t get constructive receipt of the funds, and within 45 days designate the property you want to acquire, and complete the acquisition within 180 days.

Rent Lost Due to Fire Not Tax Deductible

Q: I own a rental house that was badly damaged in a fire. As a result, it is now vacant and I am losing the $850 rent the tenants previously paid me. The insurance company says it will take at least six months to repair the extensive fire damage. Can I deduct my lost rent on my income tax returns?

A: No. Lost rent income is not a tax deduction. But you won’t have to report any taxable rental income, since you are not receiving any rent. If you have loss of rents coverage in your insurance policy then you will receive rent payments from the insurer.