Discussion:Investment Real Estate becomes Personal Property
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Discussion Forum Index --> Tax Questions --> Investment Real Estate becomes Personal Property
Davewright1010 (talk|edits) said: | 14 December 2007 |
| I plan on moving into a single family property that has been my investment property for the past 10 years (Purchase price =250k; accumulated depreciation of $90K; Net book value of $160k)and live in the property for 5 years.
Would I have a tax liability if I sold the property for $350k ( ie. gain of $190k) or would all of this gain be part of the the $500,000 exemption. I've previously sold a personal residence with a gain of $110k which was exempt due to the real estate exemption so I don't know if I can take advantage of the exemption twice. | |
Death&Taxes (talk|edits) said: | 14 December 2007 |
| To the extent the depreciation was after May 6, 1997 it will be recaptured on the sale, but the rest of the gain will be tax free. | |
Davewright1010 (talk|edits) said: | 14 December 2007 |
| What do you mean by "recaptured on the sale". Do you mean the $90,000 accumulated depreciation is taxed? | |
Death&Taxes (talk|edits) said: | 14 December 2007 |
| Yes, if it was deducted after 5/6/97....depreciation before that date only reduces the basis. | |
Davewright1010 (talk|edits) said: | 14 December 2007 |
| How does this "recapture" activity flow through a tax return. How wouold this "recapture" be presented on a tax return - I assume its presented on Schedule D(using the aforementioned data - i.e Proceeds = 350k AD=90K Gain = $190k) | |
Death&Taxes (talk|edits) said: | 14 December 2007 |
| I would report the transaction as Long term on Sch D: 350,000 sales price, 160,000 cost, gain 190,000. On the next line, I would write 'Sec 121 Exclusion: and enter a minus 100,000 in the gain and loss column. This produces a gain of 90,000 and in 2007 it will be carried to on Line 19, Schedule D. Tax will be computed on a Sch D worksheet at a maximum of 25% on the gain [the 25% depends on the tax bracket]. | |
Davewright1010 (talk|edits) said: | 17 December 2007 |
| Another wrinkle to this scenario is the fact that I've never been able to deduct the real estate losses (with depreciation) for this rental property because my AGI is too high. Does this additional fact change the answer above ?
25% tax rate? - Is the tax on this gain a "capital gain" tax or a "ordinary income" tax ? | |
Actionbsns (talk|edits) said: | 4 July 2008 |
| I have a client who had three houses at the beginning of 2007, House A he lived in for the last 2 years and sold, sec 121 gain applies on this one and I'm good with that. House B was a rental with a line of credit in the amount of roughly $160,000, sold this one in September, question on this is whether or not the LOC is subject to the same $100K limits as personal residence LOC. House C started the year as investment property, now it's his personal residence, last year there was investment interest that was disallowed on Sched A for this house, my question on that one is - does the disallowed interest just sit there waiting until the house is sold before anything happens with it? And do I need to do anything special to move it from investment status to his personal residence? | |
| 4 July 2008 | |
| Davewright1010: The losses in former years were suspended due to passive loss rules. When you sell the activity, the passive losses are freed up and become deductible in the year of sale. Depreciation expenses that were calculated but never deducted are part of the formula. Therefore, it is possible that you may not only have reduced income, but may actually be entitled to a deductible loss. You need to consult with a tax professional who has experience in this area. | |
| 4 July 2008 | |
| Actionbsns: You should have started a new post for your question. It's hard enough to entertain the different options and questions on the OP, without answering new questions on a somewhat similar but unrelated issue.
To respond to your first question, currently nondeductible investment interest is suspended until such time that there is investment income. Upon the sale of the house, an election can be made to treat the gain as investment income (taxable at the marginal rate) in order to use the interest deduction. The suspended interest is not tied to a specific property. Any old investment income or elected capital gain can free it up. You cannot attach it to anything. Interest on the house became qualified personal residence interest upon his move to the house. | |
Actionbsns (talk|edits) said: | 4 July 2008 |
| Thanks for your response Marcilio. You present a good point on adding to existing posts, but when someone starts a new post on an existing topic, often someone chastises that person for not doing a search and states there are other discussions on their topic. It's a real conundrum, and often you feel damned if you do and damned if you don't. When do we start our new post, when do we add to an existing post so we aren't chastised for not searching first. I wonder if there isn't a way to archive discussions or enter them by the year of post or something. TA has been around long enough now that this will only continue to be a problem | |
