How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lev Your Own Question

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22836
Experience:  Taxes, Immigration, Labor Relations
870116
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

I have a house that Ive been renting to a couple for 2 years.

Resolved Question:

I have a house that I've been renting to a couple for 2 years. They want to buy it we've agreed to the payoff & $10,000. I owe $7000 to my daughter who paid the mortgage during a period when I was under employed. How will this affect my taxes this year? I'm single, my gross income will be under $40,000, I itemize & always (at least up til now!) get a tax return, usually a couple thousand dollars. I know the house will be a wash; I'm hoping not to lose more money in taxes!
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
The fact of you owning to your daughter doesn't affect your tax liability unless you will pay interest .on that loan. That is because when you took a loan - it was not included into your income - so when you pay it back - it is not deducted either.
When you sell a rental property - you need to calculate your gain or loss on that sale.

Lev :

Your gain/loos is calculated as (selling price) MINUS (adjusted basis)
Your basis is mainly your purchase price. You will add your purchase expenses, selling expenses, improvement expenses and subtract depreciation you claimed over the time the property was rented. That will be your gain.
If your gain will be zero - you mentioned that the house will be a wash - there will not be any tax liability - but still the sale transaction must be reported.

Customer:

So basically, my income is going to seem like I made 10,000 extra this year.

Lev :

That is based on your gain or loss. If you have a gain - then - yes - it will be added to your income.
But to calculate the gain - we need to start with your basis.

Lev :

Your basis is mainly your purchase price. You will add your purchase expenses, selling expenses, improvement expenses and subtract depreciation you claimed over the time the property was rented.

Lev :

If you do have a gain - a part of the gain is treated as ordinary income to the extent of depreciation allowed or allowable on the property.
Any gain recognized that is more than the part that is ordinary income from depreciation is taxed as long term capital gain at reduced rate - not more than 15%

Lev :

Let me know if you need help to determine your basis.

Customer:

A ray of hope!... the original price we paid for the home was around 96,000. (Very nice, new double wide on 1.3 acres of land; bought in 1995) The payoff is around 68,000 plus the 10,000, so does that mean the capital gain/loss is calculated on the original price, or what it's worth now?

Lev :

Your gain/loos is calculated as (selling price) MINUS (adjusted basis)
I assume that your selling price would be 68,000 plus the 10,000 - total $78k.
Your purchase price $96k need to be prorated between the land and the building - because the land is not depreciated. I just assume 20% to the land - $39.2K and $76.8 for the building.
Now - we need to know how many years the property was rented?

Lev :

If the property was rented only for two years - estimated depreciation would be $76.8 / 27.7 * 2 = $5,585
So your adjusted basis is $76.8 - $5,585 = ~$71.2k
You will prorate the sale price between the land and the building - $78 * 20%=$15.6k for land and $62.4k for building.
So you will report your sale as
land $15.6k (selling price) - $39.2K (basis)
building $62.4k (selling price) - $71.2k (basis)
So far - it looks as you will have a loss on both - the land and the building - and there will not be any additional taxable income..

Customer:

Just wondering if you're still there & did you get my follow-up question?

Lev :

I did and responded above - please scroll.

Lev :

If you are not able to see - I will switch to Q&A mode - let me know.

Customer:

The web site for viewing is horrible... you can only read one line at a time & I need to keep scrolling through the loop to see if you've answered. It doesn't end, either, just keeps starting over.
I tried going on thru my e-mail link, but that wouldn't let me see the response area at all.

Lev :

I will switch to Q&A mode - please refresh.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22836
Experience: Taxes, Immigration, Labor Relations
Lev and 9 other Tax Specialists are ready to help you
Expert:  Lev replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Customer: replied 1 year ago.

Thank you! I couldn't see anything on that other page except the first 2 paragraphs, but I could see that you kept typing!

The land was actually $16,000. We did one of those land/package deals so it was all financed together. I'm sure we financed a hefty sales commission at the time for the guy who made the sale. :/

I'm going to go back & re-read what you wrote, because I have to process it (I'm slow...lol), but wanted you to know that I could finally read what you wrote!

I'll have to check my tax returns to see what I depreciated the house for the past couple years. What you figured I'm sure is in the ballpark; I was using TurboTax or something like that.


 

Expert:  Lev replied 1 year ago.
take your time.
That above is a raw estimate - just for illustrations - not for reporting!
Your actual amounts will be different.
Customer: replied 1 year ago.

Yes, I know. I will recalculate using the correct amounts at tax time; I'm just thankful I'm not going to have to pay out any more for this house! I've tried to keep it current to protect my credit, but it will be a big relief to know I'm done with it & it won't cost any more money. In fact, it looks like it will help me this year!
Thanks again & have a great day!

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.