Why do I need to pay so much taxes when I sold the house for less than the original cost?
Depends on your selling price when figured against your "adjusted" cost basis after subtracting depreciation from it.
Remember, your adjusted cost basis is what you paid for it, minus all depreciation taken. So if you sold it for anything over that adjusted cost basis, you have a taxable gain. As I'm sure you're aware, recaptured depreciation is taxed no matter what. That is, unless your sales price wipes it out entirely, based on the adjusted cost basis.
It's really weird because in your specific case, if you sell at a loss, your cost bases is the FMV when placed in service. This will effectively reduce your tax deductible losses.
But if you sell at a gain, your cost basis is what you paid for the property (since it's higher). This effectively reduces your taxable gain.
But if your sales price results in a gain based on FMV at time of conversion, *and* a loss based on purchase price, that's not clarified in any IRS publication I can find. So I guess you just "flip a coin".
So if you're not totally confused at this point and realize you may need professional help this year, then it's obvious you haven't been paying attention. 🙂
