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aamedia
Returning Member

Sold home we purchased in 2005 that became a full rental in 2012. FMV in 2012 was over $100K less. Do we use the 2012 FMV as cost basis or what we paid in 2005?

Using FMV for 2012 means and added $100K on capital gains since we sold the home last year. We puchased at $360K, FMV in 2012 was $256K and we sold last year for $380K. Selling costs were $2$K, so we actually lost money based on the orignal purchase. But the FMV in 2012 makes it look like we had high capital gains we know owe taxes on. This much be wrong. Or is it? Seems unfair to be paying when we actually lost money.

What can we do? If FMV was down from original cast, does that make a difference?

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2 Replies

Sold home we purchased in 2005 that became a full rental in 2012. FMV in 2012 was over $100K less. Do we use the 2012 FMV as cost basis or what we paid in 2005?

selling price (assuming gross ) 380K

selling expenses 25K

= net selling price

cost 360K - you use your actual cost not the FMV when converted to rental

less depreciation allowed or allowable

= tax cost basis 

net selling price less net tax basis = taxable gain or loss

 

any taxable gain is first subject to depreciation recapture. section 1250

 

Carl
Level 15

Sold home we purchased in 2005 that became a full rental in 2012. FMV in 2012 was over $100K less. Do we use the 2012 FMV as cost basis or what we paid in 2005?

You can not report this sale in the SCH E section of the program, all because the cost basis used for depreciation is not the cost basis you will use for reporting the sale.

First, work through the SCH E section and convert the property *and* all it's assets to personal use, with a conversion date of the closing date of the sale. This is the only way you can get the total amount of depreciation taken on all assets. You will need this when reporting the sale.

While working through the assets/depreciation section to convert all the assets to personal use, (I can't stress this enough) READ THE SMALL PRINT! It "will" matter so that you are not asked for sales information in the SCH E section of the program.

You will report the sale in the "Sale of Business Property" property section, using the original cost basis, plus the cost of any property improvements you did during the entire period you owned the property.

 

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