The answers to your questions are printed below so that you can see each one separately.
Question: Would it also not make any sense for the house value not to go up?
- Yes, if the property was well maintained it could certainly go up. The point was to make sure you were using the most accurate method to determine your selling price for both land and building (and capital improvements).
Question: Gross sales of property was $184K (which is obviously less than my total original costs of $189K). So I applied 19% to the $184K and it obviously resulted in a lower land sales price ($35,048 vs, $36K). What am I doing wrong?
- You are not doing anything wrong in the way you should calculate the land selling price (19% x $184,000 = $34,960). The Land has no depreciation so there is nothing to recapture on the land.
- You will have an overall gain because you have not yet accounted for the depreciation for the rental period. The depreciation will be recaptured up to the amount of gain on the sale. Depreciation is considered as allowed or allowable so even if you never used depreciation expense on the rental building the IRS says you have.
- Building sale: Selling price - selling expenses - cost - depreciation = Net gain
- Based on your figures there is roughly $50,000 +/- depreciation that would have been expensed on your returns during the rental period.
Question: I wasn't sure how I am to handle the amortized/depreciated refinance fees.
- Do nothing. These were already handled on the 2020 tax return. You said they were expensed in 2020 when the property was taken out of service.
@gjgogol
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