|
 |
|
11.4 Sale or Trade of Business, Depreciation, Rentals: Sales, Trades, Exchanges
What form(s) do we need to fill out to report the sale of rental
property?
The gain or loss on the sale of rental property is reported on Form 4797 (PDF), Sale of Business Property. Form 1040, Schedule D (PDF), Capital Gains and Losses,
is often used in conjunction with Form 4797. For further information, refer
to Publication 544, Sale on Other Disposition of Assets,Publication 550, Investment Income and Expense, the Instructions to Form 4797 (PDF), Sale of Business Property, and
the Instructions to Form 1040, Schedule D, Capital Gain and Losses.
References:
We are selling rental property and have never claimed depreciation.
What do we do about this when we file our taxes?
When reporting the sale of or computing gain or loss on rental property,
you are required to make an adjustment to your basis for allowable depreciation
regardless of whether the deduction was taken. For more information refer
to Publication 544, Sale or Other Dispositions of Assets, and
the
Instructions for Form 4797, Sales of Business Property.
If you have unclaimed depreciation for two or more years, you must use Form 3115 (PDF), Application for Change in Accounting
Method, to claim the depreciation that should have been taken. The Form
3115 must be timely filed for the same tax year in which you sell the rental
property or an earlier tax year. If you placed in service the rental property
only one year prior to selling it, you may amend your income tax returns using Form 1040X (PDF), Amended U.S. Individual Income Tax
Return, to take deductions for the claimed depreciation.
References:
I am selling my rental property and was asked to pay the buyer's
closing costs. Is all or part of the costs deductible for me?
In computing your gain or loss on the sale, reduce your proceeds from the
sale by your selling expenses, including the buyer's closing costs that you
agree to pay. Refer to Publication 544, Sales and Other Dispositions
of Assets, for additional information.
References:
How do I file the gain on an installment sale of business property
in each year? What form do I use?
Use Form 6252 (PDF), Installment Sale Income,
to figure your installment sale income each year. This form does not account
for taxable interest income from the sale that needs to be reported each year
by the seller, usually on Form 1040, Schedule B (PDF),
Interest and Ordinary Dividends.
You may also need Form 1040, Schedule D (PDF), Capital
Gains and Losses, and Form 4797 (PDF), Sales
of Business Property. For additional information including forms and
instructions, refer to Publication 537, Installment Sales
References:
What forms do we file to report a loss on the sale of a rental property?
The loss on the sale of rental property is reported on Form 4797 (PDF), (Sale of Business Property) as ordinary loss.
References:
I sold a rental property in which I had previous years' loss carryover
due to the loss limitation rules. Can I recover the total carryover since
the property has been disposed of?
The losses (but not credits) that have not been allowed from your rental
property in previous years including the current year generally are allowed
in full in the tax year you dispose of the entire interest in the property.
More than one form or schedule may be required for reporting the loss.
See Publication 525, Passive Activity and At-Risk Rules and Publication 544 , Sales and Other Disposition of Assets for
information on the reporting of the sale of activities with unallowed losses.
References:
Can you sell rental property and reinvest it into rental property
without paying capital gains tax?
No. A deferred exchange will be treated as a sale rather than a tax free
exchange if the taxpayer actually or constructively receives money on other
property in full consideration of the relinguished property. However, rental
property may be exchanged directly for other rental property of like kind.
Gain realized from such an exchange is deferred. For additional information
on like-kind exchanges, refer to Publication 544, Sales and Other
Dispositions of Assets.
References:
I have heard that I can sell my rental property and use the proceeds
to purchase rental property of equal or greater value and the transaction
is viewed just like an exchange in that the tax is deferred until the new
property is sold. Is this true?
What you have heard about is a like-kind exchange. A like-kind exchange,
when properly executed, represents a way to postpone the recognition (taxation)
of gain essentially by shifting the basis of old property to new property.
If, in addition to giving up like-kind property, you pay money in a like-kind
exchange, you still have no recognized gain or loss. The basis of the property
received is the basis of the property given up, increased by the money paid.
There are several rules and restrictions that must be strictly adhered to
in order for a successful exchange to take place. Deferred exchanges will
be treated as a sale rather than an exchange to the extent that the taxpayer
actually or constructively receives money or other (not like kind) property
in exchange for the like-kind property given up. For more information refer
to .Publication 544, Sales and Other Disposition of Assets ,
and Form 8824 (PDF) Instructions, Like-Kind
Exchanges .
References:
We sold a rental property last year and used the 1031 Tax Deferred
Exchange law to defer the gain into another like-kind property. How do I report
this transaction on my tax return?
Report the exchange of like-kind property on Form 8824 (PDF), Like-Kind Exchanges. The instructions for the form
explain how to report the details of the exchange. Report the exchange even
though no gain or loss is recognized.
If you have any taxable gain, resulting from the transaction, because you
had a partially deferred exchange or otherwise received money or unlike property,
report it on Form 4797 (PDF), Sale of Business
Property, and Form 1040, Schedule D (PDF), Capital
Gains and Losses. Refer to Publication 544, Sales and Other Dispositions
of Assets, which has a detailed section on qualifying like-kind exchanges.
References:
Can we move into our rental property, live there as our main home
for two years, and sell it without having to pay capital gains tax?
You may be able to exclude your gain from the sale of your main home that
you have also used for business or to produce rental income if you meet the
ownership and use tests, detailed in Publication 523, Sale of Your
Home.
However, if you were entitled to take depreciation deductions because you
used your home for business purposes or as rental property, you cannot exclude
the part of your gain equal to any depreciation allowed or allowable as a
deduction for periods after May 6, 1997. (Note: If you can show by adequate
records or other evidence that the depreciation deduction allowed (did deduct)
was less than the amount allowable (could have deducted), the amount you cannot
exclude is the smaller of those two figures.)
The gain, exclusion, and depreciation recapture should be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses,
as described in Publication 523, Selling Your Home.
References:
I just sold a commercial rental property my wife and I had purchased
thirty years ago (before she passed away) and I want to know how to figure
my cost basis. Is it the full appraised value at the time of her death, or
is it just half?
The answer depends on in which state you live in. Generally, the basis
of property you inherit is its Fair Market Value (FMV) at the date of the
decedent's death. If you live in a community property state (Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), and
inherit your spouse's interest in a property held as community property, then
the basis for the entire property becomes the FMV at the date of your spouse's
death. This also assumes that at least half the value of the community property
interest is included in the deceased spouse's gross estate. In other states,
where the property is owned by you and your spouse as joint tenants, tenants
by the entireties, or tenants-in-common, the basis of the one-half that your
spouse owned would be increased to one-half of the FMV of the property at
the date of death. The basis in the one-half that you owned would remain at
the one-half of the pre-death adjusted basis. The new adjusted basis is, naturally,
subject to all future routine basis adjustments until the property is either
sold or otherwise disposed of.
References:
|
|
|
|
