nonresident income allocation for home sale proceed

[Irene2805]

I just wanted to confirm Hal_Al's advice to you about reporting the sale of your home on a VA nonresident tax return.  [I work for TurboTax and have my own tax practice in Virginia.]

Even though you are no longer a VA resident, the home that was sold was in Virginia and the proceeds are considered from "Virginia sources."  They are subject to VA tax and should be reported on VA Form 763 - Nonresident return.  [instructions for the VA Nonresident return (Form 763) ]

HalAl's other advice is also on target -- he is one of most knowledgeable contributors!

[mjc4maureen]

You are way more knowledgeable than most of accountants.  Thank you so much.  I totally understand. 

By depreciating correctly, I estimated it saves me $2K tax because it increased my rental expense even though increased my capital gain for home sale (which I can offset).   Am I thinking correctly?

And do you think I can avoid amending 2018 tax return by recapturing the depreciation for 2018 and add that depreciation amount to 2019 depreciation amount and filing all together in 2019 tax return?  Or it is too messy?  

And if I must amend 2018 tax return, must I submit 2018 amend before filing 2019 tax return?

I so look forward to hearing your wisdom every time.  I can't thank you enough seriously.   You are my life-line.  

p.s.  Oh, yeah, I should post a separate subject line so others can benefit from your responses.

Warm Regards,

Maureen

[Hal_Al · Accepted solution]

Q. By depreciating correctly, I estimated it saves me $2K tax because it increased my rental expense even though increased my capital gain for home sale (which I can offset).   Am I thinking correctly?

A. Yes

Q. Can avoid amending 2018 tax return by recapturing the depreciation for 2018 and add that depreciation amount to 2019 depreciation amount and filing all together in 2019 tax return? 

A.  No. That's not allowed. 2018 expenses, including depreciation, must go on the 2018 return.

Q. And if I must amend 2018 tax return, must I submit 2018 amend before filing 2019 tax return?

A. No. 

[mjc4maureen]

Thanks for the confirmation.  I am glad to have you and Hal_Al valuable support.  

[mjc4maureen · Accepted solution]

Dear Hal_Al,

I am with you and totally follow your instruction with respect. 

I reported 1 item of Section 179 deduction (which $1100 treated as expense with $0 depreciation) in 2018 tax return.  When I calculate the cost basis for home sale in 2019 tax return, do I need to subtract this $1100 from the cost basis?  In other words, for recapturing the depreciation, is this $1100 considered depreciation.  Or it is irrelevant to the depreciation?  

Pardon me.  I'll also post this question as a separate subject line (Is Section 179 deduction considered depreciation when calculating home sale cost basis).  So other people get benefit from your response. 

Thank you so very much,

Maureen

[ColeenD3]

Yes, Section 179 is depreciation and yes, it will lower the basis. Any Section 179 property that is disposed of before the life of the property has expired has to be recaptured. However, it is not recaptured 100% since you did use it for a portion of it's useful life? What is the asset and how long did you have it?

[mjc4maureen]

Thanks for a quick reply, Irene.  

It was my basement carpet replacement when the basement was flooded in 2018.  I should have reported as maintenance or repair expense instead of Section 179 deduction.   Since I need to amend 2018 tax return, can I correct it and place it for maintenance/repair expense?

Thanks,

Maureen 

[DavidD66 · Accepted solution]

Yes, if you are going to file an amended return, you can change the carpet from Section 179 to an expense.

[mjc4maureen]

Thank you, David.  Great answer.

[mjc4maureen]

Thank you Colleen.  Sorry to mis-type your name earlier.  

[mjc4maureen]

Hi Hal_Al,

It is Maureen again.  How are you?  Hope you are well and healthy. 

Although you said I didn't have to file 2018 amend before submitting 2019 tax return.  That is comforting.  As you know, my 2019 tax return is referring to 2018 amend number though (e.g. depreciation recapture).   In my mind, I prefer IRS processes 2018 amend before 2019 tax return.  Can IRS sort it out themselves if they get 2019 tax return first before 2018 amend?  Am I worried too much?  

I submitted 2018 amend via certified mails on April 1.  Due to pandemic, it is stall in USPS facility for IRS delivery.   2018 amend for Virginia was delivered.  Meanwhile, I am pressed to file 2019 tax return at least for Virginia part because Virginia tax return filing deadline approaching (5/1) or I would pay interest for tax I owing them.  

A separate question -  Can I efile 2019 Virginia tax return without efiling Federal?  My urgency is on 2019 Virginia tax return not Federal. 

Yeah, I am still struggling with my tax returns.

Hope to hear from you soon.   

Thanks,

Maureen