Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I am trying to complete my taxes and have stumbled on form 4797, relating to the sale of a residential property used for rental.
Now, the property is kind of a financial albatross, so I am trying to report it as best I can to be more advantageous to our taxes.
The actual sale price of the property was $30,000. It was purchased in 2004 for $23,000. Therefore, the net capital gain from the asset base would be $7000.
It is my understanding that I can calculate a property depreciation from this, based on the use and wear of the property. I am very lost on this aspect.
I also understand that expenses related to the sale can also be included. This makes a little more sense to me.
The biggest problem in reporting, is that I would like to report it as an overall net loss. There was a $49,000 principle remaining on a HELOC taken out against this property. and required us to pay a huge amount out of pocket to satisfy the loan, since the property was technically under water.
Out of the $30,000 proceeds, we paid $3180 in realtor fees, $1350 in other fees (title, legal, etc), and a large share on taxes. The net proceeds from the $30K shrank to $19,650, requiring $30,000 out of pocket to pay off the HELOC.
Any advice on how to go about reporting this? Is the HELOC payoff reportable as depreciation in this instance?
It is my understanding that I can calculate a property depreciation from this,
based on the use and wear of the property. I am very lost on this aspect.
Have you been renting it out all along?
Have you been taking depreciation expense against that (declared) rental income all along?
I can not figure out what you are telling us. If it was a rental property you should have and better been taking depreciation on it all along.
When you sell the property you don't take depreciation you have to pay it back as it is recaptured at up to a 25% tax rate.
The law is very clear. The depreciation on a rental must be recaptured upon sale even if you did not bother to take it.
The fact you may not have taken it is a moot point. You were supposed to and were required to.
The reason you have it recaptured is in effect you have been dropping the cost basis each year by taking the depreciation so in effect if you held it 27-1/2 years your cost basis would be zero and anything you sold it for taxable as profit.
That can be one of the pitfalls of playing with rentals and not knowing what you are doing.
Last edited by mathjak107; 02-10-2013 at 06:10 PM..
If i am right and he failed to take depreciation up to now then this is far to complex at this point for him to just use turbo. If he failed to take the depreciation all along turbo won't do much to help him.
At least an accountant can file 3 years amended returns to ease the tax pain.
He owes recapture on 13 years of depreciation he may never have taken. That is almost 1/2 the cost basis .
The entire residential deduction is your cost basis less the land value divided over 27-1/2 years.
2004 to current just about makes everything over 1/2 your cost basis taxable.
I am assuming it has been a rental since then.
The only good news is there is a cap of 25% on the tax rate on recapture.
Last edited by mathjak107; 02-10-2013 at 06:55 PM..
It was my wife's property from prior to our marriage. It was co owned with her ex. I have been playing around with trying to estimate our taxes if we file jointly, and the sale of this thingy complicates it immensely.
I really have no idea if they have been taking depreciation or not. She basically ended up with it reluctantly from a prior divorce.
It had been a rental since 2006. My wife and her ex lived in it prior to then. They were definately very unwise in their handling of it. That's for sure.
Please do yourself a favor and find a good accountant; forget about a do-it-yourself tax program!
You have several issues - the rental/depreciation issue and the fact that this house was apparently part of a settlement in a divorce.
If your wife co-owned it with her ex and then received it as part of a settlement, there may be an issue on how to value the property. We don't have enough information to help you with that.
Last but not least, the HELOC has nothing to do with IRS reporting. It's cost basis vs. sales price, with possible depreciation recapture, minus expenses.
Be prepared to supply previous tax returns to the accountant so s/he can see how you reported income and expenses for the property.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
