Cap Gain calculations

[teamleader65]

I purchased a  rental house 2/8/19, for $408,509. Land value 54,000. Sold the house 6/5/19 for $425,000 and same land value, but $6,040 in expenses to sell. I have run the numbers numerous times and TT keeps telling me I have a gain of $68,833 on the disposition of the house, killing me with taxes. I am running this through Property Assets after setting up for depreciation, then checking that I also sold the asset.

Any recommendation for a reality check on the gain amount?

[Anonymous]

easy answer.   you have to set up the sale of the land.  here's what happening

purchase          408500

to land                 54000

basis building 354500

selling price      4250000

costs                      6040 

net sale price    418960

net selling price            418960

basis building                354500

gain                                    64460   difference depreciation

you must set up the land as a separate asset and allocate part of the sales price and cost of sale to it 

[NCperson]

@Anonymous - not sure I follow - he sold the land also; I do not read it that he didn't.

purchase price is $405,000

Sales price - closing costs: $425,000- 6040 = $418,860

Gain = 418,860 - 405,000 or $13,860

I wonder if  the depreciation is $54,973. 

so the gain is $13860 and the depreciation recapture of $54,973 or $68,833.

The tax on the recapture is 25% or $13,743 and the capital gains tax on the $13860* 15% is $2061.  

I wonder if  the 'recapture' why he is getting "killed on taxes".

[Carl]

When you sell rental property you are required to recapture all prior depreciation taken and pay taxes on it. If you did not depreciate the property, then you still have to recapture the depreciation you "should" have taken and pay taxes on it. That's your "penalty" for not having depreciated the property as required by law.

The recaptured depreciation is added to your sales price, and your gain is figured from that. Then your carry over losses are subtracted from that gain, to determine the taxable amount of the gain.

Sounds to me like you had around $54K of depreciation that was recaptured. Not unrealistic based on the data you've provided.

[teamleader65]

Thank you.

I ran the numbers again on a new "test" tax return, prior to calculating any of my other rentals, and it got worse. I don't know what numbers I could have changed or left blank.

I purchased the rental house 2/19 and sold 6/19. There was no prior depreciation and for 2019, TT gives me depreciation deduction of $4,297.

Is it realistic to own the property for 4 months, net $10,451 profit (425000 sale minus 6040 expenses minus 408509 purchase price = 10451 profit) and have a gain of $69,473, which the delta in my tax equals owing $14,995 (more money that I made).

After 26 years of using TT, I might need to hire an account.

[NCperson]

well, I  missed that it was only owned for 4 months...

have you conducted a line by line compare with the sale and without the sale to see what line on the 1040 or schedule D  is driving the difference.. $69k doesn't make any sense 

what line(s) are materially different...from there we can figure out the issue