Military NR of CA, house rental while transferred ...
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Military NR of CA, house rental while transferred in military.

NR of CA, rented for 7 yrs with loss, lived for 3 1/2 yrs. Federal says I can take exception of up to 10 years. CA 3/5 years, but still have loss. Rec. 1099S and CA 593.  Couple of questions:

1.  Did Federal on-line had me do a 4797 for sale of asset, huge loss.  Is that where I put the sale since, I am qualified to do an exception of 7 years and qualify for no capital gains over $500,000 MFJ?

2.  California - always a lost, had all taxes done at block, and since we always had a loss we never filed NR CA State.  Last year renters moved out, after several months getting it fixed back up, sold.  Escrow file a CA 593 taking out taxes.  Even with CA rules, we still have a loss, how do I get the $$$ back that they took at escrow?

 

Thank you

Sherri@V2K

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Level 15

Investors & landlords

FYI - Residential Rental Real Estate will practically always show a loss "ON PAPER" every year at tax filing time. When you add up the allowed deductions of Mortgage interest, property taxes, property insurance and the depreciation you are required to take by law, those four items alone are usually enough to exceed your total rental income for the year. Add to that the other rental expenses you're allowed and you're practically guaranteed to operate at a loss "ON PAPER" at tax time every year.

 

If you are AD/MIL and vacated your primary residence to relocate under PCS orders, *and* if you are still in the military when you sell the property, then you qualify for the "2 of last 10" as opposed to the "2 of last 5". In other words, the 5 year rule is extended for a maximum of 5 additional years. (It could be less under some circumstances.)

Now in reporting your 2019 sale in Turbotax for "BOTH" federal and state, the below is "GUIDANCE' - not step by step. Since you qualify to extend the 5 years to a maximum of 10 years, this guidance will seem to "fall apart" on you as you work through the program menus. So the one thing I want to stress is "read the small print" on each and every screen "BEFORE" you enter data or make selections. If there's something in that small print you're not clear on, then by all means "STOP" and ask. The small print provides the clarity that most users need. But on some of those screens that "clarity" may not be clear enough for some situations. So stop and ask.

Did Federal on-line had me do a 4797 for sale of asset, huge loss.

Then the '2 of last 5" or "2 of last 10" rule is irrelevant here.

Even with CA rules, we still have a loss, how do I get the $$$ back that they took at escrow?

You file a CA tax return. But understand that money in escrow remains your money until it's used by the escor account manager to pay a "deductible" expense. So if you were refunded money from the escow account, I would expect that money to be money where taxes were already withheld on the federal level. If CA is *NOT* your resident state then I would expect you to just file a CA NR return indicating that you are not a resident of the state and that you live(d) there under official PCS orders - thus making it non-taxable.

Now for the state return I honestly am not that famliar with CA taxes, other than being informed by multiple sources that CA tax laws are the 2nd most convoluted in the country. 🙂 So give it time and I"m sure another will jump in here that's more familiar with CA taxes than I am.

 

 

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Level 6

Investors & landlords

File the CA return to get a refund of the income taxes they withheld at closing. 

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