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Old 10-21-2016, 09:01 AM
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How to report sale of sec 121 with LK sale

First sorry for the long post....
When I sold my personal residence on land contract some years ago (around 2005 I think it was), it qualified for the section 121 cap gains exclusion. The tenant/owners gave me a down payment and paid me for several years. They then decided they were no longer interested in owning it long term and walked away. So, I took possession back and have been performing a lot of fix-up/updating/refreshing and hope to sell it soon.

Round figures....Originally bought the home for myself for around $100,000. Sold it to them for a land contract sales price of $150,000. They made amortizing payments to me and paid a total of around $15,000 towards the principal.

Again, the gain on sale of $150,000 minus my original $100,000 purchase price would be ignored vis a vis sec 121. My thinking is that when I took the property back, the land contract price of $150,000 would serve as my new cost.

Not sure if it's relevant but I will note that I never put this property back into service so there was never any depreciation on it because it was never rented or ready to rent. It's been vacant for a couple of years and I'm now finishing up the rehab process.

A couple questions. When I do sell it, what tax forms should I use to report it? And, let's say I sell for $165,000 and let's say I've put $10,000 back into it --- how do I incorporate these repair/refresh costs.

Thanks all



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Old 10-21-2016, 02:17 PM
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When I sold my personal residence on land contract some years ago (around 2005 I think it was), it qualified for the section 121 cap gains exclusion. The tenant/owners gave me a down payment and paid me for several years. They then decided they were no longer interested in owning it long term and walked away. So, I took possession back and have been performing a lot of fix-up/updating/refreshing and hope to sell it soon.

Round figures....Originally bought the home for myself for around $100,000. Sold it to them for a land contract sales price of $150,000. They made amortizing payments to me and paid a total of around $15,000 towards the principal.
Again, the gain on sale of $150,000 minus my original $100,000 purchase price would be ignored vis a vis sec 121. My thinking is that when I took the property back, the land contract price of $150,000 would serve as my new cost.=====>Correct;it was an installment sale that is a sale of property where you receive at least one payment after the tax year of the sale.;so the sale must be reported to the IRS using the installment method unless you opt out of using this method by filing an election with the IRS. Aslongas you realize a gain on an installment sale, you need to report part of the gain when you receive each payment.



Not sure if it's relevant but I will note that I never put this property back into service so there was never any depreciation on it because it was never rented or ready to rent. It's been vacant for a couple of years and I'm now finishing up the rehab process.====>>UNLESS you put the pty into rental svc, you donot need to recapture sec 1250 recapture taxed as ordinary income taxed a t 25%.

A couple questions. When I do sell it, what tax forms should I use to report it?====>> Real estate transactions, including land contracts that are not excluded by capital gains tax laws must be reported to the IRS on Form 1099-S

And, let's say I sell for $165,000 and let's say I've put $10,000 back into it --- how do I incorporate these repair/refresh costs.=====> You are generally not allowed to deduct the cost of repairing your home.; pne way to deduct the cost of repairs is if you rent the home to tenants. Since the home is considered an investment property



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Old 12-01-2016, 11:58 PM
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Sec 121 reply

Agree with previous comments but would also add that if the $10K you put back into the property is a capital improvement (or perhaps a portion of the $10K), it will get added to basis, thus reducing your potential cap gain once it sells.



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