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Old 03-27-2013, 06:17 PM
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how to report sold a property used as main home and rental

Hi,

I need help on how to report selling of my house.

- bought it on 12/2008
- rented out on 2/2009
- ended of renting on 2/2010
- house was empty for remodeling from 3/2012 to 9/2010
- moved in and lived there from 10/2010 to 9/2011
- moved out and listed for selling from 11/2011 to 1/2012
- finalized sold it on 1/2012

My question: how should I report this sold? should it be reported as rental property (business used) or as my main home (personal used)?

Thanks a lot.
Jen



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Old 03-27-2013, 09:01 PM
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“- bought it on 12/2008- rented out on 2/2009- ended of renting on 2/2010”========>You need to recapture your unrecaptured depre taken ding this period as your pty was used as rental pty on the disposition of the pty as ordinary income taxed at 25% as long as your marginal tax rate is 25% or higher.
“- house was empty for remodeling from 3/2012 to 9/2010- moved in and lived there from 10/2010 to 9/2011- moved out and listed for selling from 11/2011 to 1/2012- finalized sold it on 1/2012. “My question: how should I report this sold? should it be reported as rental property (business used) or as my main home (personal used)?”=========>You, as you converted the rental pty to primary home, need to report it as primary residence, NOT rental pty.SO, your home was NOT a rental property at the time you sold it, you would NOT report the sale on Form 4797.As you know, converting investment property to a primary residence can create a significant tax savings. Capital gains tax/ tax on unrecapotured depre as ordinary income can be a significant burden when selling an investment property. One way of reducing or eliminating your capital gains tax liability is by converting the investment property into a primary residence in order to qualify for the primary residence exclusion of $250K for individuals or $500K for couples filing jointly. You need to convert your investment property into your primary residence by moving into it and living there. Generally, when you sell the pty as your main home NOT as rental pty, you can exclude from federal income tax any gain on the sale up to $250K or up to $500K if you are married filing jointly. To qualify for this exclusion you must have owned and lived in the property as your main home for at least 2 years during the 5 years prior to the sale. Also, you must not have excluded the gain on the sale of another main home in the last two years.You need to live in the converted property for a continuous period of two years. HOWEVER, according to the IRS, if you rented out your main home part of the time, you can still exclude the gain on the sale provided you meet the ownership and use test. The two years do not have to be continuous. For example, if during the last five years you lived in the home for one year, rented it out for three years, and then returned and lived in the home for one year, you would qualify to exclude the gain.You generally cannot exclude the part of the gain that corresponds to nonqualified use of the property in 2009 or later. This would be any period when you did not use the property as your main home.To qualify for the exemption, you also must not have already used the exemption during the past two years. In order to claim this exemption, you must have lived in the property as your primary residence for two out of the last five years. Additionally, the exclusion can only be used once every two years, so provided you can show that the home was your primary residence for the two-year period, you have not used the exclusion and your capital gain did not exceed $250K for an individual or $500K for a married couple filing jointly, then you won't owe any capital gains tax on your sale. If you sell your home at a gain and qualify to exclude the entire gain, you do not have to report the sale on your federal income tax return. If your gain is more than the exclusion amount, you would report the sale on Sch D of 1040/ Form 8949, which is a new form for 2011. You would pay long-term capital gains tax on the difference.A loss on the sale of your home is not deductible. But if you receive a Form 1099-S for the sale, you would have to report the sale on Form 8949, even though the loss is not deductible.



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Old 03-28-2013, 03:07 AM
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how to report sold a property used as main home and rental

Thanks for your quick response.

But I have a confusion with your response. In my case, I owned the home less than 5 years and not living there for 2 years. I owned it for 3 years and 1 month. Within that 3 years and one month, it was rented out for 1 year and I only lived there less than one year. So will I still report it as my primary home even though at the time it was sold it wasn't a rental property? What form should I fill? Also, I sold it as a loss, not a gain.

Thanks a lot.
Jen



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Old 03-28-2013, 04:24 AM
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“ So will I still report it as my primary home even though at the time it was sold it wasn't a rental property? “========>What I meant was that I assumed that you CONVERTED( I said , QUOTE,” You, as you converted the rental pty to primary home, need to report it as primary residence, NOT rental pty.SO) the rental pty to primary residence before selling it, then it is primary home , NOT rental pty; however, UNLESS you converted it to primary residence before selling it, then it ‘d be rental pty, NOT primary home so,As long as you sold it as rental pty, then, The sale of an asset used for business purposes, such as a home that is rented for income, 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 just as it was in prior years. Only include rental income and expenses up until the date of sale on Sch E.

“What form should I fill? Also, I sold it as a loss, not a gain.”============>UNLESS it was converted to primary residence , you need to report it on Form 4797; then, you do not need to recapture the unrcaptured depre taken previously as there is no LTCG on the sale of the rental pty; According to IRC section 1231, losses from the sale of rental real estate are ordinary losses. Ordinary losses are deductible in full against your ordinary income (like your wages and interest you earn, for example). When selling a rental house at a loss, the loss may actually turn out to be smaller than you’d expect. While you were renting it out, you were most likely depreciating the cost of the house on Sch E. When you sell the house, your cost basis in the house is reduced by the amount of depreciation you’ve taken, which makes for a smaller loss. The IRS uses different loss rules to limit the types and amount of losses deducted for rental properties. The tax savings realized through a tax loss may be used to offset income such as self-employment income or alimony. However, selling a rental property triggers an exception to the passive loss rule and suspended passive losses, if you have, are deductible once the home is sold. The situation is very different, however, when it comes to selling the home you live in (that is, your primary home) at a loss. Unfortunately, there is no tax deduction if you sell your primary home at a loss. It’s kind of a subtle point, but the ordinary loss from the sale of a rental is not the same thing as a passive loss from operating and depreciating rental real estate. The $25K tax exclusion for rental real estate applies to passive losses from rentals.If your rental pty loss is large enough to exceed your 2012 taxable income it may even create a net operating loss .NOLs are handy because you can carry the loss back for two years and recover some or all of the taxes you paid back in 2010and/or 2011. Alternatively, you can choose to carry the NOL forward for up to 20 years, to 2012 and beyond, and use it to offset income that might be taxed at higher rates (possibly much higher rates) in those years.


Last edited by Wnhough : 03-28-2013 at 04:28 AM.


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Old 03-31-2013, 03:11 PM
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Could you please clarify your statement again? I just want to know if I should report it as a rental or primary. I am not worry about other subsequence tax rules at this point. I just want to know if I need to report it as RENTAL or PRIMARY.

Let me state my situation again, and you can just tell me: It is RENTAL or PRIMARY. Please do not spend time to tell me all other information. I just want to know the type of sold.

bought 12/2008
rented from 2/2009 to 2/2010
vacant for remodeling from 3/2010 - 6/2010
moved in and lived from 10/2010 to 8/2011
moved out for staging and listing for sale from 9/2011
sold 1/2012

Thanks,
Jen



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Old 03-31-2013, 03:16 PM
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did you convert the rental pty into primary pty??? AS sAID PREVIOUSLY, UNLESS it was converted to primary residence from rental pty , you need to report it on Form 4797 as rental pty , NOT priamry pty; ALSO, you do not need to recapture the unrcaptured depre taken previously as there is no LTCG on the sale of the rental pty;



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Old 03-31-2013, 04:41 PM
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Thanks for you quick response. How do I determine if it is 'Converted to primary" or not? I just moved in and lived there for a few months. Is there any factors that can be used to determine if it is 'converted' to primary or not? That is not black and white line and I have a difficult to understand the definition. Could you please advise?

thanks,
jen



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Old 03-31-2013, 05:20 PM
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“How do I determine if it is 'Converted to primary" or not? I just moved in and lived there for a few months. Is there any factors that can be used to determine if it is 'converted' to primary or not?”=========> There is nothing in the tax law that prevents you from converting your primary residential property to a rental property and there is no time limit how long the property should stay rental in order to be eligible to deduct the loss as long as your intention to convert to a rental is clear.Generally - if you rent the property for less than a year and the amount of loss you deduct is substantial - you would expect the IRS will audit you and your intention to convert the property to rental will be questioned.If the IRS agent finds out that the only purpose of that conversion was to have losses deductible - most likely your deduction will be disallowed.Howeveryou need to review your mortgage contract, if there is a loan on the property. If the home loan was expressly for a primary resident or the contract has a provision that forbids renting the property, then, you can’t convert it to rental pty. In general, you can rent it out, or whatever, as long as it isn't violating any city ordinances (using it as a business might, for example), you can do what you choose with your property.



“That is not black and white line and I have a difficult to understand the definition. Could you please advise?”==============> There is no conversion process that you must go through. There is a caveat though; If you took part in the first time homebuyers credit. You can't move out for 3 years.



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