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I sold a rental property in 2020 for 326,500. When all associated fees are subtracted it comes out to about 303k, paid 123k in 92. Why is the tax approx 50k?

I entered the sale under "Your Property Assets" along with other major items such as a roof, siding etc. Any idea why the tax numbers seem high?

Asset: Real Estate property
Residential Real Estate
Cost: 123,933
Cost of land: 31,000
Date purchased 09/02/1992

This item was sold, rented,......
Used 100% for business
Started using 9/2/1992
Depreciation $7584

Sales info:
Asset Sales price: 244,875
Asset Sales expense: 16940
Land Sales: 81,625
Land Sales expense: 5647
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5 Replies
ColeenD3
Expert Alumni

I sold a rental property in 2020 for 326,500. When all associated fees are subtracted it comes out to about 303k, paid 123k in 92. Why is the tax approx 50k?

You have a $50k gain on land.

 

I don't know how you are getting depreciation of $$7,584. MACRS depreciation is 3.636% every year except the first and last which are prorated. $92,933*3.636%*18 years is about $64,201.

 

 

I sold a rental property in 2020 for 326,500. When all associated fees are subtracted it comes out to about 303k, paid 123k in 92. Why is the tax approx 50k?

Asset: Real Estate property
Residential Real Estate
Cost: 123,933
Cost of land: 31,000
Date purchased 09/02/1992

This item was sold, rented,......
Used 100% for business
Started using 9/2/1992
Depreciation $7584  this can not be right. the building cost would be about $93,000 and in 28 years (purchase 92 sold in 20 the building would be almost fully depreciated

Sales info:
Asset Sales price: 244,875
Asset Sales expense: 16940
Land Sales: 81,625
Land Sales expense: 5647

 

 

 

land net sales price about $76000 less cost $31000 = long-term capital gain of about $45,000 say tax at 20% tax $9,000

 

depreciation recapture on the property based on IRS ruled the larger of allowed or allowable of about $93,000 say tax at 25%  about $23,000

 

building net sales price about $228,000 less adjusted basis $93,000 = long-term capital gain of about $135,000 say tax at 20% tax $27,000 

 

so i come up with total taxes on the sale of about $59,000. the difference could be some components are tax at a lower tax rate. 

 

residential real estate excluding the land portion should be depreciated over 27.5 years. with a cost of about $93,000, depreciation would be about $3,400 per year.  if you took incorrect depreciation you need to see a pro. this requires fixing and filling forms like 3115 to correct. I don't think this is a do it yourself project if you took the wrong depreciation  

I sold a rental property in 2020 for 326,500. When all associated fees are subtracted it comes out to about 303k, paid 123k in 92. Why is the tax approx 50k?

Great information. So Are you saying I need to fill in 93K for my total depreciation if I depreciated every year?

Do I have any ability to do tax harvesting of stock losses to offset the gain?

 

Thanks Much!!!

DianeW777
Expert Alumni

I sold a rental property in 2020 for 326,500. When all associated fees are subtracted it comes out to about 303k, paid 123k in 92. Why is the tax approx 50k?

Yes.  The full depreciation (IRS language is allowed or allowable) must be used to offset the cost of your rental property as @Mike9241 indicated. The IRS language means that whether you used the depreciation or not, you were allowed to use it, so now you must account for it.  As he pointed out, Sales price minus expense of sale minus cost plus depreciation will provide the net gain. 

 

The losses from stock sales, will be incorporated on the Schedule D with this gain. If you have carryover losses and they are included in 2020, it will be helpful in a year where you have gain. If that is what you mean for 'tax harvesting' then you are correct. 

 

You cannot take losses on stocks you hold, and have not yet sold as of December 31, 2020.

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Carl
Level 15

I sold a rental property in 2020 for 326,500. When all associated fees are subtracted it comes out to about 303k, paid 123k in 92. Why is the tax approx 50k?

There's no way you've got a mere $7,584 of depreciation on an asset that cost $92.933 that was classified as a rental for 27 plus years. In fact, the asset should be darn near completely depreciated to a value of $0, depending on the month of acquisition and the moth of the sale. The most depreciation you would have taken on the property in any one year after the year of purchase would be $3,379. So I have no clue where you're getting the $7,584 from.

You "should" be showing significantly more than a $50K taxable gain on the sale. In the tax year you sell the property you are required to recapture all prior depreciation taken (or the depreciation you should have taken if you failed to depreciate) and pay taxes on it. Additionally, that recaptured depreciation increases your AGI for the tax year and has the potential to bump you into the next higher tax bracket.

I would highly suggest you work back through it again and double check your understanding of what each screen is asking you for.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

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