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Sold rental property and main home

I sold my main home and rental property. Is this correct, I can only claim $250k exclusion on 1 main home? And not on both? I made $100k gain on each property

 

rental property was jointly owned by parents with rights of survivorship. They both passed away in 2018. Property been on rental from 2018 - 2022. Does this mean I’m sole owner?

 

for rental property, do I just take gross proceed - cost of property - expenses for gain in 4797?

6 Replies

Sold rental property and main home

I sold my main home and rental property. Is this correct, I can only claim $250k exclusion on 1 main home? And not on both? I made $100k gain on each property   Only the personal residence profit can be excluded.

 

rental property was jointly owned by parents with rights of survivorship. They both passed away in 2018. Property been on rental from 2018 - 2022. Does this mean I’m sole owner?  Yes you are the sole owner. Have you not been reporting the rental on the Sch E all these years?

 

 

for rental property, do I just take gross proceed - cost of property - expenses for gain in 4797?   If this has been reported on the Sch E then the property assets should have been depreciated  and all of them need to be sold ... the sale will show up on the form 4797.

 

 

 

If you have been depreciating the property correctly all these years then here is a basic blueprint to follow : 

 

 

Cost basis =  purchase price + cost to buy + improvements

Adjusted cost basis =  cost basis -  depreciation taken

Sales price - ( cost basis + cost to sell )  =  profit or loss

Profit - depreciation taken = cap gain 

Depreciation is taxed as ordinary income not to exceed 25%.

Cap gain taxed at no more than 20%.

 

Ok ... a simple example of ratios ...  if you have more assets than the example then you will have more lines.  Remember if you divide a big number into a littler number you get a % ...  thus 5000/100,000 = 5%

 

       original  cost basis          ratios                  Sales price             cost of sale 

home    80000                   80%                          160,000               8,000

land       15000                   15%                           30,000                 1,500

roof        5000                        5%                           10,000                   500 

totals     100,000                100%                        200,000               10,000

 

All you need to enter into the program is the % of sales price & % of cost of sale for each asset being sold and you will have to do the math yourself as the program will not do it for you if you have more than one asset (the land & building are considered 2 assets) . 

 

And if you have NOT been taking depreciation as required  then RUN to a local tax pro when you file this return to get this error fixed correctly so you do not pay more taxes than you are required to do ... the form 3115 you need is not supported in the TT program and it is NOT a DIY project. 

 

 

Sold rental property and main home

can't say whether you are the sole owner. the property would pass to any heirs specified in their wills or trust agreements. if they died intestate (no will) and the property was not held in trust state law would dictate who the heirs are.  assuming you are the sole heir

I would clarify the tax basis for the rental property. it seems you inherited the property after your parents passed. assuming you were not inheirit the property until the second one passed your starting tax basis would be fair market value on their date of death. to that would be added the cost of any subsequent improvements you made less depreciation that would start upon inheriting the property. any previous deprecition taken by your parents disappears. 

Sold rental property and main home

I did report rental income as sole owner in previous years. I don’t understand the depreciation part. I never took depreciation in prior years. Just took income - expenses.

 

 

Sold rental property and main home

RUN TO A LOCAL TAX PROFESSIONAL NOW !!!

 

Depreciation was a requirement  not a suggestion and fixing this is NOT a DIY project.     

Sold rental property and main home

How will pro will fix it? 

 

Sold rental property and main home


@stech wrote:

How will pro will fix it?


Most likely file a Form 3115 for you and make a Section 481(a) adjustment for the foregone depreciation (the depreciation that you should have taken).

 

See https://www.irs.gov/instructions/i3115#en_US_202212_publink100035791

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