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Old 09-17-2015, 12:29 AM
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Sale of rental property

I have owned a rental property for ten years that I purchased from a non-relative at FMV in 2005 for 210k. I have reported a net loss each year on my taxes of about 15k from depreciating my rental property, deducting my mortgage interest from the loan on this house, and adding back my rental income.

My adjusted cost basis ten years later after depreciation is deducted and improvements are included is now 150k.

I don't want to have any capital gains on this property (or have to recapture any previously deducted depreciation) so I am selling it back to the original owner from 2005.

My question is if I sell my house for 150k and the FMV is 250k is the IRS going to say my sale in 2015 is actually now a gain of 100k because I should have sold it for FMV? I'm not trying to pick up a loss on the sale as I just want to sell it at my current tax basis.

Thanks



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Old 09-17-2015, 02:24 AM
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Quote:
Originally Posted by Azref2627 View Post
I don't want to have any capital gains on this property (or have to recapture any previously deducted depreciation) so I am selling it back to the original owner from 2005.

My question is if I sell my house for 150k and the FMV is 250k is the IRS going to say my sale in 2015 is actually now a gain of 100k because I should have sold it for FMV? I'm not trying to pick up a loss on the sale as I just want to sell it at my current tax basis.
Even if you sell it back to the original owner from 2005, you must recapture the unrecaptured depreciation of sec 1250 on the disposition of the rental home to its original owner.However, If you make a gift of the depreciable real property to a donee, then, you do not have to report income on the transaction. However, if the donee sells or otherwise disposes of the rental property in a disposition subject to sec 1250 recapture, the donee needs to take into account the depreciation you deducted in figuring the gain to be reported as ordinary income taxeda t 25% .



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Old 09-17-2015, 03:21 AM
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Thanks for your reply but I think I am more confused.

Cost in 2005 was 210k
Cap Improv was 40k
Depr taken over last 10 years was 100k

Adj tax basis in 2015 is (210+40-100) = 150k

FMV is 250k

I agree if I sold it for 250k I have to recapture 100k in depr (250-150) but if I sell it for 150k I think it is net gain of $0 (150-150).

If I sold it to someone other than the original owner would it matter? Owner didn't have title or hold any notes against property after it was sold in 2005.



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Old 09-17-2015, 02:42 PM
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Quote:
Originally Posted by Azref2627 View Post
Thanks for your reply but I think I am more confused.

Cost in 2005 was 210k
Cap Improv was 40k
Depr taken over last 10 years was 100k

Adj tax basis in 2015 is (210+40-100) = 150k

FMV is 250k

I agree if I sold it for 250k I have to recapture 100k in depr (250-150) but if I sell it for 150k I think it is net gain of $0 (150-150).

If I sold it to someone other than the original owner would it matter? Owner didn't have title or hold any notes against property after it was sold in 2005.
Cost in 2005 was 210k
Cap Improv was 40k=>Then your adj basis is
Depr taken over last 10 years was 100k>then your adj basis is150K;250K-100K

Adj tax basis in 2015 is (210+40-100) = 150k=>>Correct

FMV is 250k

I agree if I sold it for 250k I have to recapture 100k in depr (250-150)=>correct;your LTCG is 100K;250K-150K, but the whole of the gain of 100k is ordianry income , sec 1250 deprecaition recapture. So if your marginal tax rate is 25% or higher than 25%, then you must pay tax 25K;25%*100K; if your marginal tax rate is 15%, thenyour tax is 15K;100K*15%


but if I sell it for 150k I think it is net gain of $0 (150-150). ==>correct;no sec 1250 recapture depreciation needs to be recaptured.

If I sold it to someone other than the original owner would it matter? ===>>t doesn’t matter


Owner didn't have title or hold any notes against property after it was sold in 2005.====>>UNLESS you give it to another person as a gift, aslongas you sell it, you must recognize your gain/loss whenyou sell it.



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