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Old Yesterday, 04:30 PM
 
85 posts, read 67,090 times
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Hi - I posted this question as I dont understand how the taxes work in these situation. I know this for sure that my CPA has been filing the depreciation of my rental property every year. I will be filing the taxes thru CPA but before that I was trying to get some understanding of how taxes work if I happen to sell the house within the next month.

thanks
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Old Yesterday, 04:41 PM
 
150 posts, read 33,172 times
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Quote:
Originally Posted by relocatetoxxxx View Post
Hi - I posted this question as I dont understand how the taxes work in these situation. I know this for sure that my CPA has been filing the depreciation of my rental property every year. I will be filing the taxes thru CPA but before that I was trying to get some understanding of how taxes work if I happen to sell the house within the next month.

thanks
You will be taxed at 25% on the recovered depreciation and then whatever your long term capital gains rate is on the gain if you have one. From what you said you have a loss so that loss may reduce other capital gains or it may just be carried over year to year until you use it. In any event, you are taxed at 25% flat on the recovered depreciation.
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Old Yesterday, 08:31 PM
 
140 posts, read 98,755 times
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Quote:
Originally Posted by relocatetoxxxx View Post
I have a rental property that I have been renting for last 3.5 years. I am planning on selling it. I initially bought the home for 300k but now I am selling the home for $275.

Will I be incurring any taxes on the amount that I get from this transaction after the loan payment etc. ?
How is the that calculated ? There is of course depreciation of the house.

Also I own a house now which is my primary residence.

Thanks

The basic answer to your question is that your tax situation will depend on how your selling price compares to your "adjusted basis" in the property. Depreciation subtracts from your initial investment to give you an adjusted basis. Substantial "improvements" add to the adjusted basis, but this does not include routine repairs, painting, cleaning, property taxes, insurance, etc.


In other words, if you paid $300,000 for the property and then took $30,000 in depreciation over the past 3 years, then your "adjusted basis" is $270,000. So, if you sell it for $275,000 then you will have a $5,000 gain to recapture.
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Old Yesterday, 08:47 PM
 
Location: NE Mississippi
14,199 posts, read 8,878,908 times
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Quote:
Originally Posted by Chas863 View Post
The basic answer to your question is that your tax situation will depend on how your selling price compares to your "adjusted basis" in the property. Depreciation subtracts from your initial investment to give you an adjusted basis. Substantial "improvements" add to the adjusted basis, but this does not include routine repairs, painting, cleaning, property taxes, insurance, etc.


In other words, if you paid $300,000 for the property and then took $30,000 in depreciation over the past 3 years, then your "adjusted basis" is $270,000. So, if you sell it for $275,000 then you will have a $5,000 gain to recapture.
Rental property is depreciated over 27.5 years, so depreciation would be $300,000/27.5 = $10,909 per year.
So your example is exactly right.
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Old Today, 08:54 AM
 
970 posts, read 869,139 times
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Quote:
Originally Posted by Chas863 View Post
In other words, if you paid $300,000 for the property and then took $30,000 in depreciation over the past 3 years, then your "adjusted basis" is $270,000. So, if you sell it for $275,000 then you will have a $5,000 gain to recapture.
Quote:
Originally Posted by Listener2307 View Post
Rental property is depreciated over 27.5 years, so depreciation would be $300,000/27.5 = $10,909 per year.
So your example is exactly right.
Not quite there yet, guys. Depreciation applies only to the improvements on the property. Assessed value of the land is excluded. Certain appliances and other improvements may also have their own depreciation schedules. I hope the OP's CPA has taken this into account.

This is how I got in trouble trying to do my own taxes with Turbo Tax & calculating the depreciation wrong. When I finally sold the property, my CPA filed amendments to fix the depreciation. I also ended up selling at a capital loss, but since I am single I could only deduct $1500/year of the loss against ordinary income (you can also deduct as much as you need to offset any capital gains). I ended up rolling over the deduction for three years until I used it up.
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Old Today, 08:56 AM
 
73,553 posts, read 73,361,051 times
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Quote:
Originally Posted by semispherical View Post
Not quite there yet, guys. Depreciation applies only to the improvements on the property. Assessed value of the land is excluded. Certain appliances and other improvements may also have their own depreciation schedules. I hope the OP's CPA has taken this into account.

This is how I got in trouble trying to do my own taxes with Turbo Tax & calculating the depreciation wrong. When I finally sold the property, my CPA filed amendments to fix the depreciation. I also ended up selling at a capital loss, but since I am single I could only deduct $1500/year of the loss against ordinary income (you can also deduct as much as you need to offset any capital gains). I ended up rolling over the deduction for three years until I used it up.
land value should always be subtracted out when one calculates ...
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Old Today, 12:27 PM
 
140 posts, read 98,755 times
Reputation: 271
I totally agree that you don't get to depreciate the land. However, that doesn't change my example wherein I stated that if he had (correctly) taken $30,000 depreciation off of a purchase price of $300,000 then his adjusted basis would be $270,000.


There may be other relatively minor considerations (such as closing costs) that would affect his adjusted basis, but my example should give him a decent approximation of where he will stand with regard to taxes. The OP obviously isn't preparing his own taxes and I think he was just wanting an approximate ballpark idea of where he would stand taxwise. I'm assuming that his tax preparer DOES know how to figure depreciation correctly, but that's not always a safe assumption.
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