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Old 02-27-2013, 10:55 AM
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how to report sale of un-itemized depreciable items that were sold with rental house

I sold a rental house (I never lived in it-strictly investment property) for a significant long term LOSS. Over the years a number of small items were replaced and depreciated each year. Items such as a frig, stove,hot water heater, etc. I did NOT itemize (with buyer) the sale prices of these individual items from the depreciation schedule when the property was sold. Everything was sold as one lump sum. Is it acceptable to report the sale of the entire property on Form 4797, Part 1, Line 2 as a SINGLE line item? Or should I try to create an estimated value at time of sale for each depreciated item sold resulting in multiple line items for Form 4797? Or what you recommend? Thank you.



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Old 02-28-2013, 07:34 PM
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“I sold a rental house (I never lived in it-strictly investment property) for a significant long term LOSS.”=========>As you’ve owned for more than a year. That loss will be a Section 1231 loss—which can be a good kind of loss to have; Section 1231 losses can be used to reduce any type of income you may have - salary, bonus, self-employment income, capital gains, you name it.ALSO, you may have a net operating loss if the Section 1231 loss is large enough to reduce your other income below zero. If so, you can carry back the NOL for at least two years and use it to offset taxable income in those years. In doing so, you can recover some or all of the taxes you paid in those previous years by amending those returns.If any of the NOL is left over after going back two years, you can carry the rest forward into future tax years to offset future income (for up to 20 years). Alternatively, you can choose to not to carry it back and just carry it forward for 20 years.OR you can use remaining NOL when you depose of it and this’d reduce your LTCG(if you have LTCG). If your rental property has generated losses in past years, you might have suspended passive activity losses .You can generally deduct these losses only against passive income, which can be from other activities such as rentals or other passive business activities. Fortunately, you can also deduct suspended PALs when you sell the property that generated them. If you sell a rental property with suspended PALs, you may be able to deduct them on top of deducting any Section 1231 loss from the sale. Like Section 1231 losses, deductible PALs can also create or increase an NOL that you can carry backward or forward.

“Over the years a number of small items were replaced and depreciated each year. Items such as a frig, stove,hot water heater, etc. I did NOT itemize (with buyer) the sale prices of these individual items from the depreciation schedule when the property was sold. Everything was sold as one lump sum. Is it acceptable to report the sale of the entire property on Form 4797, Part 1, Line 2 as a SINGLE line item? “=================>Unfortunately, you cannot deduct the cost of making property improvements. However, the cost of these improvements can reduce the amount of tax you pay in the future on gain resulting from the sale of the property. The tax basis of your property can increase over time for the cost of making improvements to the property. To increase your tax basis, it must be a permanent improvement, meaning that the work you do to the property will last for years to come and also increases the market value of the entire property.. However, your basis does not increase for the ordinary repairs you make since these generally don't add value, but rather just maintain the property. Essentially, gain you recognize on the sale of any property that doesn't qualify as your main home is not eligible for a gain exclusion. in most cases, as of February 2011, if you've lived and owned yourmain home for two of the last five years, up to $250,000 ($500,000 for married taxpayers) of your gain from the sale is excluded from tax anyway. The sale of your rental home is reported on IRS Form 4797. If there was any rental activity in the year the property was sold, the rental income and expenses are reported on Sch E, .Only include rental income and expenses up until the date of sale on Sch E. Enter the sale proceeds on line 1 of Form 4797. The proceeds will be reported to you on form 1099-S. Form 1099-S will be mailed to you by January 31 of the year following the sale.Skip Parts I and II of Form 4797 since they do not apply to the sale of rental real estate. You need to record a description of the rental property on line A of Part III, line 19(a) of Form 4797. The description should include the address of the rental home. Enter the date acquired and date sold on lines 19(b) and 19(c), respectively. If you are unsure of the dates to report, review your closing documents from both the original purchase and the sale. The date sold will also be included on form 1099-S. Enter the gross sale price of the rental home on line 20 under the column for Property A. If you are only reporting one sale on Form 4797, the amount on line 20 will match the amount on line 1.Calculate the cost basis of the property, add expenses related to the sale of the property and enter the total on line 21. The cost basis is the amount you purchased the property for. Selling expenses allowed to be added to the cost basis include attorney fees, title fees and recording fees. Add depreciation deducted throughout your ownership of the rental property and any Section 179 expense deduction taken, and enter the total on line 22. Section 179 expenses are expenses deducted in full in the year incurred instead of depreciating them over the useful life. Expenses relating to a rental home that may be written off, using Section 179, include major roof repairs and the cost of re-siding the entire home. Subtract line 22 from line 21 and record the amount on line 2. This is your adjusted basis in the rental home.Subtract line 23, the adjusted basis, from line 20, the gross sale price, to calculate your gain on the rental home. Calculate and record the depreciation for the rental home in lines 26(a) through 26(g). Rental homes are by definition Section 1250 property. Section 1250 property refers to depreciable real property. There is no depreciation recapture if you used straight line depreciation during your ownership of the rental home. You also need to calculate the amount of depreciation deducted for the rental home from the year 1975 through the sale date. Calculate the amount of depreciation that would have been recorded if the straight line method of depreciation was used. Determine the difference between the two methods and enter the result on line 26(a). Calculate 100 percent of the smaller of line 24 or 26(a) and enter the result on line 26(b). Subtract line 26(a) from line 24. Since you are completing Form 4797 for the sale of a rental home, skip lines 26(d), 26(e) and 26(f). Enter the result from line 26(b) on line 26(g). Skip lines 25, 27, 28 and 29. These sections do not apply to rental homes.Determine the total gain on all rental properties reported on Form 4797, line 24 and enter the result on line 30. Add line 26(g) for all sales reported on Form 4797 and record on line 31. Subtract line 31 from line 30 and enter the result on line 32 and line 6 (Part I) of Form 4797. Add lines 2 through 6 on Part I of Form 4797 and enter the result on line 7. You will also enter the result on Sch D/form 8949, line 11, long-term capital gains. Do not record anything in lines 8, 9, 11 or 12 on Form 4797 since these do not apply to rental homes. The gain from the sale of the rental home will be included with the other gains reported on Sch D/form 8949 and be reported on line 13 of Form 1040.



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