Sale of a beach condo used as a short-term rental and personal use

[Gene26]

I purchased a condo on 10/1/20 to use for short-term rentals and personal use.

If I were to sell the condo before 10/2/21, it would be treated as a short-term gain on my 2021 taxes, right?

And if I sold it on 10/2/21 or later it would be a long-term capital gain?

Can TurboTax help me with an estimate of what that difference would be in terms of how much my tax liability would be different depending on when I sell it?

Also, is the cost of closing such as attorney fees and realtor fees get deducted from the adjusted cost basis when figuring the capital gain?

Thanks

[HelenC12]

The best way to get an estimate of what your tax liability would pay if you sold your condo before holding it for one year and after holding it one year, using TurboTax Online, I suggest you create two "test" accounts. See How do I start another return in TurboTax Online?

• Re-enter all your current year information and then enter the condo based on the holding period.

If you're using the CD\Download version, just save your current file using "save as" and rename it. You'll be able to "save as" two returns using the different holding periods.

You'll be able to add selling expenses when you enter the sales information. Before figuring gain or loss on a sale, exchange, or other disposition of property, or before figuring allowable depreciation, you must determine your adjusted basis in that property.

The following settlement fees and closing costs for buying the property are part of your basis in the property

• Abstract fees.
• Charges for installing utility services.
• Legal fees.
• Recording fees.
• Surveys.
• Transfer taxes.
• Title insurance.
• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

[Gene26]

Thanks so much. That is a good idea to create two test accounts but seems like a lot of work. Is there any way to get a ballpark idea without all that?

If I understand the answer to the second question, I will be able to offset some expenses related to the capital gain from the sale by deducting sellers closing fees, realtor fee, etc. Is that right?

[DianeW777]

Yes, you can offset the gain by using the selling expenses.  If you want to get an idea of the gain and the tax treatment of that gain without adding it into your tax return here is a summary below.  However, if you save your return as suggested and you open it, enter the sale information as though you sold it in 2020 this will provide the change in tax liability assuming your income and other items on the tax return will remain relatively the same. Then you can choose to save it by renaming it to something other than the name of your actual return for 2020.

Figure out the gain by taking your original cost basis, subtracting all accumulated depreciation calculated on your depreciation worksheet, add any capital improvements over time and then subtract any depreciation used for that, add the sales expenses.

Subtract the result above from the selling price.  The result is the gain. If you sell on or before 10/01/2021 it will be considered short term and the tax will be what your regular tax rate is now on your taxable income (Line 15, Form 1040).  Add the gain to this figure before using the tax rate schedules below.

If you sell it after 10/01/2021 it will be considered a long term holding period. In this scenario, the portion of the gain up to the amount of depreciation will be taxed at a maximum of 28% but may be lower if your tax bracket is lower.  Add the gain to the same taxable income figure you show on the 1040 for 2020.

To determine your maximum tax rate based on your taxable income you can use the tax rate schedules for 2021 at the link below.

• Tax Rate Schedules 2021 (Scroll  to your filing status tables).

[My lab George]

With only social security and a state of md retirement, how and what form (s) do I use?

[PattiF]

You can enter this information about the sale of your beach condo in the investment section of TurboTax.

Note: To report investment sales, you’ll have to use TurboTax Premier, TurboTax Self-Employed, or TurboTax Home & Business.

TurboTax Online

1. Open or continue your return
2. In the search box, search for sold second home and select the Jump to link
3. Answer Yes on the Did you sell any stocks, mutual funds, bonds, or other investments in 2021? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
4. On the OK, let's start with one investment type screen, select Other, then Continue
5. On the Tell us more about this sale screen, enter the name of the person or institution that brokered the sale
6. On the next screen, select Second Home (choose this also for inherited homes) or Land and answer the questions to finish entering your sale

If you received a 1099-S that shows the proceeds of the sale, you would enter the information the same way.

The basis of the beach condo is the original price that you paid, and certain expenses from the purchase that are on the Settlement Statement such as abstract fees, legal fees, title search preparation of the deed, recording fees, surveys, transfer taxes, title insurance and any amounts that the seller owed such as back taxes that you agreed to pay. If you made any major improvements or renovations, that could be added to your basis. These will make the amount of your gain smaller.

Page 11 and 12 of IRS Publication 530 talk about adding to the basis.

@My lab George