Bought primary home 2008 for $170,000 (improvements $30,000)
a. Used one room as home office in 2010,2011,2012 (took total of $647.94 depreciation (cost basis was $8537.97, method SL,Recovery period 39))
b. Rented out room in all of 2012 and 5 months of 2013 (didnt take depreciation)
2.In November 2013 moved and rented the whole house from 12/2013 to 6/2015 (took $6967 deprecation cost basis was $121,010 method SL,Recovery period 27.5))
3. Sold it in 7/2015 for $204,000 (Selling cost of $16,000).
I am confused on how to report this on form 4797.Do i report it in part I because it is a loss and divide it between land and building?====>>in general,You need to report unrecaptured sec 1250 depreciation on form 4797 part I and transfers it to sch D of 1040; section 1250 depreciation recapture differs in that the maximum tax rate that applies is currently 25 %.however as you took a loss, you need to report sec 1250 depreciation recapture on f 4797 part 2 and f1040 line 14 .Your basis for gain/loss is the lower of the original basis or the FMV at the time of the conversion to the rental.you also need to tsubtract out the accumulated depreciation from this value and to add in selling expenses and improvements. say you purchased your home for $300K You spent another $50K on improvements. So, your so called adj tax basis would $350K. At the time of conversion, your homeFMV is $250K. Eventually, you sell your newly converted rental property for $200K after taking $15Kin depreciation write offs during the rental period.So,you incurred losses. Your usual tax basis would be $350K But, because of the conversion, your tax basis is the lesser of either $350K (the purchase price PLUS Improvement costs) or $250K (FMV on the date of conversion). So, your tax basis for losses would be $250K. However, you also took advantage of depreciation deductions in the amount of $15K. So, your losses would be $250K (the tax loss basis with depreciation)-$200K (the sale amount)-$15K (depreciation deduction)=$35K.
correct as you sadi, as land is not depreciable , you must divide it between land and building.just for reference, this is not your case; however, there are tax benefits for selling a primary residence that won't be available on a long-term rental property. When selling your converted rental property, you lose the home sale exclusion. In 2015, the first $250k for single, or $500k of gain for married filing jointly is excluded from taxable income for the sale of a primary personal residence you've lived in for at least the last 2 of 5 years. Rental property is income-producing property and as such, considered business property. You need to report the loss on the sale of rental property on Form 4797, you need to transfer the loss as ordinary loss to line 14 of Form 1040.
What dates do I use for date acquired? =======>>>for gain/loss purposes, it is 12/2013.
Or do I need to report the land section in part I of 4797 and building in part III line 19. ======>correct;the land sale results in a capital gain/or loss. The building sale results in a section 1231 gain or loss. As you owned the property for more than a year before selling it, you must separate the sale of the b/d from the sale of the land. The sale of the land is noted in Part I, and you enter the sale of the structure there as well as you have a loss.
Also do I put down section 121 exclusion in part I of 4797 line 2 where land is because it wasn't depreciated and there was a gain.====>>I do not think so; as said, as the property was also used as rental property, you may be eligible for your primary residence exclusion by completing a 1031 exchange to defer the rest of the gain. A 1031 exchange is allowed under section 1031 and defers gain on the sale and subsequent purchase of property held for business use or for investment