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Old 02-02-2014, 09:53 AM
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Rental Home Sale (Qualified Extended Duty?)

Hello,

My wife and I are both in the military and are in the process of selling our rental property. We purchased the home in Oct 2004 and lived in it until Oct 2006 (exactly 2 years) before moving 36 miles away to a different duty station. We lived at that duty station until Apr 2011 (4.5 years) and during that time my wife deployed for 9 months while I remained at our new duty station and then I deployed for a year while my wife remained behind. In Apr 2011 we moved again, more than 50 miles away, qualifying for extended duty.

Does our individual time away qualify for extended duty? How much time are we able to suspend? The projected gain is less than $500K, would we owe capital gains tax?

Also, I want to make sure I understand depreciation recapture correctly. We depreciated the property using the 27.5 year straight line method. Original purchase price was $195K and the adjusted basis is $240,280. We claimed $37,850 depreciation so the book value is $202,430. The sale price is $200K.

Am I correct in assuming we do not owe depreciation recapture since the sale price is less then the book value?

Thanks
Mac mil-2-mil



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Old 02-02-2014, 10:52 AM
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Originally Posted by Mac mil-2-mil View Post


#1;Does our individual time away qualify for extended duty?



#2;How much time are we able to suspend?


#3;The projected gain is less than $500K, would we owe capital gains tax?

#4;Also, I want to make sure I understand depreciation recapture correctly. We depreciated the property using the 27.5 year straight line method. Original purchase price was $195K and the adjusted basis is $240,280. We claimed $37,850 depreciation so the book value is $202,430. The sale price is $200K.

#5;Am I correct in assuming we do not owe depreciation recapture since the sale price is less then the book value?

Thanks
Mac mil-2-mil
#1;t his is not your case, evenIf you lived in your home less than 24 months, you may be able to exclude a portion of the gain. Exceptions are allowed if you sold your house because the location of your job changed, because of health concerns, or for some other unforeseen circumstance.If you lived in your house for less than two years, you can exclude a part of your gain on the sale of your house if your work location has changed. This exception would apply if you started a new job, or if you are moved to a new location with your employer.

#2;What y mean by this???i guess yiou need to read the posts below

#3;Aslongas you convert it into primary residence, then, as you can see, You can get the section 121 exclusion;Section
121 allows 250k of capital gain to be tax free if single, and 500k if
married provided you lived in the home for the last 2 years, or 2 of
the last 5 years. However, as youneed to recapture the unrecap depre taken on the house while it was used as rental pty, the amount of section 121 exclusion’d be reduced . So. if you own a rental unit that has a substantial amount of equity, you might consider moving into it before you sell it. Doing so can save you substantial capital gains taxes on your profit. However, there are many tax consequences you should be aware of before you convert a rental unit into your personal residence.

#4;Yu need to reduce the amount of your LTCG by the amount of unrecap depre that yu took on the rental pty. Assusme that converting a rental into your residence will not eliminate all taxes when you sell it. While the home was a rental, you should have claimed a depreciation deduction for it each yearassaid. The total amount of depreciation you claimed during the rental period is not eligible for the exclusion. Instead, you must "recapture" all your depreciation deductionsthat is report them on IRS Sch D/form 8949 I guess and pay a flat 25% tax on these deductionsUNLESSyour tax bracket I slower than 25%. This can have a significant tax impact. In the example below, if you had taken $10K in depreciation deductions during the time she rented out the home, she would have to pay a deprecation recapture tax of $2.5K (25% x $10K = $2.5K).so it carries an effect of reducing your LTCG amount subject to exclusion.

#5;Then yes; the unrecap depre is applied only when you have capital gain on sale of your home used as rental pty before.So aslongas the sale price is less than thee BV or say you carry PAL from the rental pty, , then you take a loss then no need to recapture your unrecap depre as you have no taxable gain/prfit. The unrecap depre is Usually taxed as ordinary income at 25% aslong as your marginal ta crate is 25% or higher
NOTE; the greatest boon in the tax law for property owners is the $250K/$500K home sale exclusion. This rule permits single homeowners to exclude from their taxable income up to $250K in profit realized from the sale of a personal residence. The exclusion is $500K for married couples filing jointly. There is no limitation on how many times the exclusion may be used during your lifetime. To qualify for the home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. Your two years of ownership and use can occur anytime during the five years before you sell—and you don’t have to be living in the home when you sell it. However, a special rule enacted in 2009 limits the $250K/$500K exclusion for homeowners who initially use their home for purposes other than their principal residence, such as a rental or vacation home. The rule requires you to reduce pro rata the amount of profit you exclude from your income based on the number of years after 2008 you used the home as a rental, vacation home, or other “nonqualifying use. For example: say, you buy a home on January 1, 2009 for $400K, and uses it as rental property for two years. On January 1, 2011, you evict your tenants and move into the house, thereby converting it to your principal residence. On January 1, 2013, you move out and rent it again. You then sell the property for $700K on January 1, 2014. you have a $300K gain (profit) on the sale. You owned the house for a total of five years and used it as a rental property for two years before you converted it to your residence. Thus, two of the five years (40%) before the sale were a nonqualifying use, so 40% of your $300K gain ($120K) does not qualify for the exclusion. This means that you must add $120K to your gross income for the year. Your remaining gain of $180K is less than the $250K($500K if you are married) exclusion, so it is excluded from your gross income.

A nonqualified use can occur only before the home was used as the taxpayer’s principal residence. Time periods after the home was used as the principal residence do not constitute a nonqualified use. This is why your nonqualifying use during 2013 does not reduce her exclusion.
Once you occupy the home as your personal residence, you will no longer be able to take any of the deductions you took when the property was a rental. This means you will get no depreciation deduction and you can't deduct the cost of repairs. However, you will be entitled to the deductions provided to homeowners that is, you may deduct a personal itemized deduction on IRS Sch A the amount of your mortgage interest, mortgage insurance premiums, and even property taxes. The expenses must be prorated for the time the home was not considered a rental property.
Sales of rental property create taxes just as any other kind of transaction that produces income. However, because rental property can sometimes be a primary residence and sometimes an additional property, the tax treatment may be different. If a property was a primary residence, 2010 tax laws allow a profit exemption up to $250,000. With a rental property the sale usually involves a secondary property. As a result, no exemption occurs. However, should the property sell at a loss versus its original purchase price it can then be taken against other income earned, reducing overall taxes.



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Old 02-02-2014, 11:54 AM
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I just want to make sure you read that I'm in the military. I should be qualify for an exemption and the 2 out of 5 year qualification period can be suspended for qualified official extended duty for up to 10 years.



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Old 02-02-2014, 06:41 PM
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Originally Posted by Mac mil-2-mil View Post
I just want to make sure you read that I'm in the military. I should be qualify for an exemption and the 2 out of 5 year qualification period can be suspended for qualified official extended duty for up to 10 years.
definitely~~; you are definitely accurate; I couldn’t remember the rule sorry about it. The period of suspension can-not last more than 10 years. You cannot suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.



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