Property sale

[LMK60]

I own a home that I put up for sale in late 2022 and moved to another city, leasing a house there.   My home (the only own I own) didn't sell, so I rented it out from January 2023 thru June 30 2023. It finally sold effective July 3.

During the first half of this year I will have received rental income, but also had to rent a home in another city, and now have capital gains.

What are the several ways my 2023 income taxes will be affected? 

[JBedford]

Hi, @LMK60 , thanks for the question! 

I suppose the big question is whether or not you are able to exclude some or all of the gain from the sale. This article goes into those details. But in a nutshell:

• If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
• If you are married and file a joint return, the tax-free amount doubles to $500,000.

Additionally, you will need to report your rental income and expenses. And finally, there are a few states that may offer a deduction for the amount you paid in rent, so it's worth checking if your state is one of them! (If you're using TurboTax, it will ask if you paid rent when you're completing your state return.)

Hope this helps, please let me know if this raises additional questions! 

[riecruzer]

I had a similar question so just wanted to understand in my scenario. I own a home as a 2nd home and rent it as a vacation rental. I paid 155 and hoping to sale for 350. Since the difference is less than $500k and i file joint married i would not psy capital gains?

[Joe Bedford EA]

Generally speaking, the exclusion only applies to one's primary residence, as there are both use and ownership tests that must be satisfied. Therefore, it is unlikely that you would be able to exclude the gain in your case, sorry! 

[mdhubel]

Cant, he take the mortgage (if he had one)  as an expense against the rental income. This would be an offset to the interim rental until he sold his house, if the state does not allow for it?

[Joe Bedford EA]

Not exactly, a mortgage is not a deductible expense. However, depreciation expense can be taken on a rental property. 

[mdhubel]

Interest is deductible, the principal is not

[Joe Bedford EA]

Yes, that is correct! 

[riecruzer]

So does that mean Id pay like 50k to sell my house? Im more confused. 

[Joe Bedford EA]

Based on the information provided, you may have taxable capital gains of $195,000. Capital gains tax brackets can be found in this non-TurboTax article. Hope this helps! 

[tagteam]

@riecruzer 

If you took depreciation deductions (and you should have if the home was a rental), then you need to reduce your cost basis of $155,000 by the accumulated depreciation deductions. 

[Joe Bedford EA]

That's true, @tagteam , great point!