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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 704
Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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Just sold a house (June 2013) which was my primary residence

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Just sold a house (June 2013) which was my primary residence until July 2009. Rented continously from July 2009 until May 2013 (4 of past 5 years). I have:
1. Loss on sale of house (Purchased $1.250k 2006, Sold $1.140k 2013)
2. Settlement charges of $25.5k on 2006 purchase (from HUD-1, line 1400)
3. Settlement charges of $70.9k on 2013 sale (from HUD-1, line 1400)
4. Depreciation expenses of $33.7 while renting
5. Sched E Passive Losses Carryover (both Regular and AMT) of -$114.6k

BotXXXXX XXXXXne- Need advice on how to put this all together for my 2013 taxes. Allowable losses? Could someone do a "proforma" on this transaction that will guide me for my 2013 taxes?
Thanks for using! I will do my best to provide you with a clear and concise answer to your tax question based on the information that you have provided.

Because the home has not been your principal residence for 2 out of the last 5 years, the fact that it was your residence is irrelevant to your tax situation.

As a rental property, both the passive activity losses on this rental from prior years and the loss on the sale will be deductible in 2013. Your 1.25 million dollar basis will increase by the purchase and sale settlement charges of 96,400 dollars to 1,312,700 dollars.

Proforma 1040
Line 14, from Form 4797, Part II -- Sale of the Rental Home Loss -172,700 Dollars
Line 17, from Schedule E, Page 1 -- Passive Loss Carryover Deductible in Year The Passive Activity is terminated - 114,600 Dollars
Line 22 -- Total Loss -287,300

If there are additional questions or concerns, please reply to this answer so that I may assist you further. If this answers your question, please rate my performance between OK and Excellent so that I may assist you further. Thanks for your business.
Customer: replied 3 years ago.

Wow- This is clear, concise and to the point. Thank you. These losses are taken straight from income, and not capital gains/losses?


Yes. The loss on the sale of a rental property is an ordinary loss that is fully deductible, and the disallowed passive losses are deductible in the year that you terminate the rental.

Let me know if there is anything else that I can do.
Customer: replied 3 years ago.

Last question (I hope). Where/how did you account for the $33,701 depreciation deductions I took over the years?

Sorry, that was a decrease to your basis. (1,250,000 Purchase + 96,400 Settlement Charges - 33,701 Accumulated Depreciation = 1,312,699 Adjusted Basis)
Customer: replied 3 years ago.
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