My ex & I sold a rental property at a technical loss, but got back 21k cash. I gave him 6k to pay back the remainder of a 10k loan from his mother. How do I claim this?

[joshuareane]

• We DO NOT qualify for exclusion bc we had not lived in the house for 3+ yrs. 
• Original Price 45k + 2k for closing
• We had a second loan of 10,000 from his mother for down payment. 
• Made 10000 in improvements
• I tried to rent out the property, but renters never paid and damaged the property. Cost me abt 3000 to repair. 
• When sold for 52k - closing, I got 21K back.
• I gave him 6,000 to pay back the rest of what we owed his mother. 
• This is technically a loss, but no doubt my closing statement shows I received 21,000 because I had paid off a large amount of the house myself.

 How do I report this? Does he have to claim a portion as well?

[TaxGuyBill]

The loans and the cash you got back have nothing to do with reporting the sale.

Was this originally your personal property?  If so, what was the Fair Market Value when you converted to Rental Property?

How much depreciation were you eligible to take while it was a rental property?

[joshuareane]

It was originally personal from 2009-2012. It was vacant for a while, then had a family member living for free. Then tried renting. I have not yet claimed any depreciation. Fair market value was appx 45k at the time. Improvements made it around 55k.

[TaxGuyBill]

If the Fair Market Value when you converted it to a rental was $55,000, and if you were not ABLE to take any depreciation (because it was first available for rent and then taken off the rental market within the same calendar year), you probably have a deductible loss of about $3000 ($55,000 minus $42,000).  If you were ABLE to take depreciation, that needs to be factored in and will lower your loss (or create a gain).

Yes, you need to report it.  If he owned half of the property, yes, he needs to report it as well.  Each of you would claim half of the loss (about $1500 each)

To report it, you need to go through the Rental section and enter the "asset", and then indicate the asset was sold.  I would probably recommend that you each report half of the amounts.

[joshuareane]

Well it was 45k. It was sold, not taken off the market. How do I report the sale? He owned no stake in the house as far as rental income/loss. I took over all financial ownership when we divorced. I simply owed them back the $6000.

[joshuareane]

I have no idea if I was eligible to claim depreciation because I have never tried to.

[TaxGuyBill]

When did you first make the rental available?
When did you remove it from being available for rent (such as selling it)?

I'm trying to figure out the $10,000 of improvements.  Are you saying the Fair Market Value was $45,000, then you made $10,000 of improvements AFTER it was available for rent?

It could be a gray area, but if he owned half of the property, in my opinion he needs to report half of the sale.

[joshuareane]

He no longer owned any of it. I took ownership in the divorce.

[joshuareane]

And appx 8000 before, 5000 after (including improvements, repairs)

[TaxGuyBill]

Okay, if he did not own it, he has nothing to do with the situation.

Repairs are not improvements.  Totally different.  How did you get $8000 plus $5000, when you said there were $10,000 total?  Are the other $3000 "repairs"?

I suspect it would be best if you went to a tax professional, so they can actually see the entire transaction and get all of the correct and pertinent information.  A tax professional would also be recommended if you were able to take depreciation but did not actually do it.

[VolvoGirl]

Doesn't sound like you need to report it as a rental since a family member lived there and didn't pay any rent.

[pk · Accepted solution]

Reading all of the above comments, I cannot but agree with TaxGuyBill -- please seriously consider seeing a professional  --- there are too many ands/ifs and buts in this situation.   It will cost a bit but better to be correct and compliant with the tax laws.