Originally Posted by in_the_boat
It was a rental when I sold and land value at time it was turned into rental was 350k, building 220k. When I sold it land value was 320K and building 200k. I do have roughly 75k in improvements I did while it was my primary.
>As I said previously, while the home was a rental, you should have claimed a depreciation deduction for it each year( I mean in general, the irs assume that you took depre , it doesn’t matter if you actually took it). So, the total amount of depreciation you claimed during the rental period is not eligible for the exclusion. Instead, you must "recapture" all your depre deductions that needs to be reported on Sch D of 1040 and pay a flat 25% tax on these deductions aslongas your marginal tax rate was 25% or higher(if your marginal tax rate was 10% , then 10%, if it was 15 % , then 15%). If you dispose of the home at a loss, then you do not need to recap the sec 1250 depre as there is no ord /long term capital gain earned.remember, converting the rental into your primary residence AGAIN will not eliminate all taxes when you sell it. What I am sayin, is that say you converted your primary home into a rental home and when you sell it you reconverted the rental to a primary home, then you are still subject to sec 1250 depre rule and need to recap the unrecap depre as ordinary income(as you know,once you occupy the home as your primary residence, you can no longer take any of the deductions you took when the property was a rental. So, you can not get any depreciation deduction and you can't deduct the cost of repairs. However, you may deduct a personal itemized deduction on IRS Sch A the amount of your mortgage interest, mortgage insurance premiums, and even property taxes aslongas you itemize deductions on your 1040, if not, then no. Perhaps the greatest boon in the tax law for property owners is the $250K/$500K home sale exclusion. This rule permits single homeowners to exclude from their taxable income up to $250K in profit realized from the sale of a personal residence. The exclusion is $500K for married couples filing jointly. There is no limitation on how many times the exclusion may be used during your lifetime.To qualify for the long term cap gain exclusion, you must own and occupy the home as your primary home for at least two years before you sell it. Your two years of ownership and use can occur anytime during the five years before you sell and you don’t have to be living in the home when you sell it.However, a special rule enacted in 2009 limits the $250K/$500K exclusion for homeowners who initially use their home for purposes other than their principal residence, such as a rental or vacation home. The rule requires you to reduce pro rata the amount of profit you exclude from your income based on the number of years after 2008 you used the home as a rental, vacation home, or other “nonqualifying use. For example, say, you buy a home on January 1, 2009 for $400K, and uses it as rental property for two years. On January 1, 2011, you evict your tenants and move into the house, thereby converting it to your primary home. On January 1, 2013, you move out and rent it again. You then sell the property for $700K on January 1, 2014. you have a $300K gain (profit) on the sale.you owned the house for a total of five years and used it as a rental property for two years before you converted it to your primary home again . Thus, two of the five years 40% before the sale were a nonqualifying use, so 40% of your $300K gain ($120k) does not qualify for the exclusion. This means that you must add $120k to your gross income for the year. your remaining gain of $180k is less than the $250k exclusion, so it is excluded from your gross income.Some part of your $180K ;d be taxed as sec 1250 rule as ordinary income either at 25% or lower as said. To use the $500k exclusion,EITHER spouse owned the residence and you must file a joint return. At least one spouse must meet the ownership requirement, and both you and your spouse must have lived in the house for 2 of the 5 years leading up to the sale.
A nonqualified use can occur only before the home was used as the taxpayer’s principal residence. Time periods after the home was used as the principal residence do not constitute a nonqualified use. This is why your nonqualifying use during 2013 does not reduce her exclusion.
if you plan to purchase another rental property after you sell this one as rental home, which is important if you want to use a 1031 exchange, but not necessary for any rollover of capital gains of a personal residence. A 1031 tax deferred exchange process is a means of selling an investment property and deferring paying federal income taxes on the sale of that investment property. But to do it, you have to follow some very strict rules that govern these types of sales.
Your depreciation basis would be the lower of your adj basis(after excluding land value) or fmv(excluding land value) on the date you converted your personal home to rental.when you sell it, then your net gain’d be your selling price MINUS adj basis after depreciation subtracted.
Let’s assume your purchase orignalcost is lower of $200k or fmv of $300K. Assuming your land value is 30 percent of the total purchase cost, your basis for depreciation would be $140K;200K-$60K.Rental homes are depreciated over 27.5 years, which means one year of depreciation is 3.63636 percent (1/27.5) times your basis of $140kor $5,091 per year.