Which IRS Form does he use to report the sale?===>aslongas the owner sells it as rental home, then the owner needs to file on Form 4797. If he held the property longer than1year, he must report the sale of the land separately from the sale of the structure. He needs to report the sale of the land on Form 4797, Part I.If it?s a loss, report the sale on Form 4797, Part I. If you can get past Form 4797, You must also file Sch D, with your return. If you reported a gain in Part 1 of your Form 4797, transfer that number to line 11 of Sch D as a long-term capital gain. After you complete Sch D, the resulting number goes on line 14 of your Form 1040.if he takes a loss on the sale of the rental home then he needs to report it on f1040.When you convert a personal use home to business a rental property, your basis for calculating future loss becomes the lower of the property's fair mkt value or adjusted cost . I mean the basis for depreciation is the lower of the adjusted basis on the date of conversion or the Fair Market Value of the property at the time of conversion. Generally the basis is the cost of the property plus the amounts paid for capital improvements, less any depreciation and casualty losses claimed for the tax purposes
Section 1231 losses can be used to reduce any type of income you may have - salary, bonus, self-employment income, capital gainsIf it?s a gain, report the sale on Form 4797, Part III.
The depreciation deductions will decrease his basis in the property. This is true even if he didn?t take them. It matters if he has a net gain or a net loss from all his Section 1231 transactions. This will determine if he can claim the loss on the sale of his rental property. if he sells it at a gain then he must recapture the unrecaptured sec 1250 depreciation taken previously and is taxed as ordinary income of 25%..
If he has a net loss on the Section 1231 transaction, then he?ll have an ordinary loss. Section 1231 transaction involves the disposal of business property. The property usually must be held for more than one year.
However, if he sells it as residential home , not rental home, thenhe can escape taxation on up to $250k /$500k for certain married couples filing joint returns of gain on the sale of his home. However, this tax-free treatment is conditioned on him having used the residence as his principal residence for at least 2 of the 5 years preceding the sale. The tax break will not apply to the extent of any depreciation allowable with respect to the rental /business used of the home for the periods after 1997.
The sale of a rental home, and the sale of a owner-occupied home, do they use the same IRS Form? Or different Forms?=>different forms as mentioned above, if he sells it as a rental home then needs form 4797 however, as a residential home, If you sell a house on which you have a loss or can exclude the entire capital gain, and you don't get a 1099-S form, then, you don't have to report it and no form is needed. However, when you have a gain to report, you aren't selling your primary residence or you get a 1099-S form, you'll have to file extra paperwork for the IRS with your tax return and potentially pay additional tax.. what I mean is that you need to calculate your home's adjusted basis by adding closing costs and the cost of all of the improvements you've made to your house while you owned it to your original purchase price. say you bought your house for $55k, paid $1,500 in non-loan related closing costs, and spent $11,250 on remodeling your kitchen, your adjusted basis would be $67,750.
So you need to calculate the amount realized from the sale of your house by subtracting from the selling price your commissions, closing costs and anything you spent to help the buyer get a mortgage. say, you sold your house for $197k, paid $11,820 in commission, paid $2,200 in closing costs and paid $1,850 in points for the buyer, your amount realized would be $181,130.and you need to calculate your gain / loss by subtracting your adjusted basis from your amount realized. In this example, the gain would be $181,130 minus $67,750, or $113,380.
Then, enter your name and SSN # on the top of the front and back of IRS Form 8949 when you are filing your taxes for the year in which you sold your home as he held the house for over a year, he'll be filling in the information in Part II.
He needs to check box "C" on Form 8949, if he got a form, it was the 1099-S. so he needs bothf 8949 and SCh D to report his reportable long term capital gain on his return.