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I have a tax question. My husband rented out his apartment in 2009 for a few months before he sold it as his primary residence. We will not be paying any tax because of the $250,000 exclusion on capital gains for the of a primary residence. What I'd like to know is: how do I report the depreciation of the apartment on my taxes. What form do I need to use? And how do I calculate it? I have done my own taxes for years and have a good understanding of individual income taxes, but this question is out of my league. Are there any accountants or tax buffs out there who can answer my question?
Sorry to have to tell you this, but you just increased the difficulty of your tax return by a factor of 10, if not more.
Form 4562 is used for depreciation. If you rented the apartment for just a few months before selling, it's hardly worth doing the calculation, as residential real estate is depreciated over a 27.5 year period, and you only get 1/2 month of depreciation for the first month you rented it and 1/2 month for the month you sell. On top of that, despite the general rule that allows you to exclude gain from sale of your personal residence, you still have to pay tax on the gain to the extent you took depreciation (calculate the gain on Form 4797).
If you use tax software (highly recommended in this case if you don't hire a paid preparer) it will walk you through the calculations. Otherwise check out IRS Publications 523, 527, and 946.
Thank you very much for responding to my question. After reading your post, I believe I should forget about calculating the depreciation on the rental apartment, and just take the deductions for the real estate taxes, maintenance, repairs and transportation. Do you agree?
one problem you will have if you dont take it is the irs recaptures depreciation when you sell whether you chose to take it or not. the burdeon is on you to take it because they will charge you back for it regardless
many folks dont realize that they better take that allowance because the recapturing is built right into the form thats required to be done when you sell..nothing worse then paying for something you didnt get.
Last edited by mathjak107; 03-10-2011 at 02:16 AM..
Just use Turbo Tax or similar, put in that you have a rental property and they do all the calculations for you. It is much easier that way and it will be worth the $35 you spend on the program as they will catch things you miss.
Not only is depreciation and recapture an issue in this case. Because the OP rented out the property at some point during the time of ownership the OP will have to pay a little bit of capital gains tax based on the amount of time it was rented out, for purposes of taxing capital gains the IRS assumes the property went up in value the same each year the seller owned it, and has to pay cap gains tax on the capital gains during the time the property was rented out.
Since the property was rented out a small amount of time the OP will owe only a bit of cap gains tax, I have never filled out such a form, this was a change in 2009. Before that if you lived in the property at least 3 of the 5 years you owned it you didn't owe cap gains, now it is prorated primary residence vs rental. If the IRS only cares about full years, then the OP is in luck.
I would use tax software that calculates this out.
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