Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

Reply
Highlighted
Pioneer
Posts: 2
Registered: ‎07-31-2013
Accepted Solution

sale of rental property, calculating gain/loss

Hello everyone,

 

I filed my 2012 taxes on-time back in April, but I'm still trying to figure something out that I think I may have done wrong. It's all related to selling a rental property and calculating whether I had a gain or a loss on it. I read IRS pubs 523, 527, and 551 several times. They're very confusing to me. The way I understand it, I have to add up the depriciation I deducted while I was renting the house and then subtract that amount from basis. When I do that, I come out with a gain of nearly $30k even though the house lost value the whole time I owned it. Can anybody help explain the rules here? I just can't understand how anybody ever makes a profit on rental porperties if this is really how it works...

 

Here's the timeline:

- bought house A in May 2004, family and I lived in it for 2.5 years

- bought house B in Nov 2006, family and I moved there

- tried to sell house A for over a year, couldn't get any reasonable offers

- began renting house A in Feb 2008

- sold house A in Oct 2012

 

Associate (Neighbor)
Posts: 115
Registered: ‎04-06-2013

Re: sale of rental property, calculating gain/loss

Hi Chuck14 and welcome to The Community.

Selling a rental property can be complex and a lot of questions would need to be addressed to give the most accurate answers, but I will say that yes, depreciation (allowed or allowable) is in fact subtracted from your basis when figuring gain or loss realized on the sale. I will also say that certain "closing costs" incurred at the time of the sale could actually added to your original basis (sales commission paid to real estate being one example). Unfortunately, the fluctuation of "market value" itself doesn't constitute a reportable loss on a tax return, however, such a loss is more likely to be evident in the sale price of the property.

Honestly I believe you would do yourself justice by visiting one of our year-round offices in your area and take advantage of our Second Look Review of your 2012 (and prior years) tax returns to either verify it/they were correct or if amendments are warranted.

Good luck to you.
Valued Pioneer
Posts: 4
Registered: ‎10-14-2013

Re: sale of rental property, calculating gain/loss

I have the same situation in reference to buying, living in and then trying to sell.  However, it differ in that it is still a rental.  I want to try selling it but it has loss value as well.  Purchased at 185000 and property in that area is selling at 165,000.  My agent stated that I would have to bring 6000 (after commission and closing cost) to closing IF it sold at 165000.  QUESTION:  Can I deduct this amount from my taxes?

 

Thanks

RoseW

Associate (Neighbor)
Posts: 115
Registered: ‎04-06-2013

Re: sale of rental property, calculating gain/loss

Hello RoseW and welcome to The Community.

If I am understanding your situation correctly, you still own a rental house that you wish to sell. The current fair market value is about $20,000 less than the amount you originally purchased the property for. And the agent handling the sale says that you need to pay an additional $6,000 (approximately) at closing. Is this correct?

The $6,000 amount you are asking about as a tax deduction really depends on the nature of what is being paid with it. If it is to pay 2013 property taxes and/or mortgage (interest) payments, that portion would be deductible as an expense on your Schedule E to help offset your rental income. If the payment is to pay other fees (such as legal fees, title fees, appraisal fee, etc.), then it could very well be added to your original basis to determine capital gain or loss realized from the sale. (This is just to provide a couple examples of possibilities)

As I mentioned in my previous answer, I believe you would benefit most by meeting with a Tax Professional in person to further evaluate your personal tax situation. Thank you for your question. I hope this information is helpful for you. Good luck in selling your property.
Valued Pioneer
Posts: 4
Registered: ‎10-14-2013

Re: sale of rental property, calculating gain/loss

Thank you for your response.  Very helpful.

 

Now I have another question.  I have been approached by a realtor who is representing real estate investors.  They want to purchase my home.  I have been taking approximately $5000 in depreciation every year.  I think that if I sold my house that I would have to pay 25% back to the IRS on the total amount of the depreciation, $30,000, that I took for the past 6 years amounting to $7,500.  Am I understaning this correctly?

 

Thanks

Associate (Neighbor)
Posts: 115
Registered: ‎04-06-2013

Re: sale of rental property, calculating gain/loss

RoseW,

You are not taxed directly on depreciation (allowed or allowable). Depreciation is subtracted from your basis in your property which either increases your capital gain or lessens the amount of capital loss (depending on sale price vs any other modifications to your basis) you realize from the sale.

I hope this answers your question.
Pioneer
Posts: 2
Registered: ‎02-14-2014

understanding sale of rental property Gain

I sold a rental property in 2013. I completed Form 4797 ( Sales of Business Property) with a gain of $12. When that amount was transfered to Schedule D (Capital Gains and Losses) it shows a net long-term gain of $464 and this was shown on the 1040 line1 13 as a capital gain. Can someone explain why?