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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7266
Experience:  15years with H & R Block. Divisional leader, Instructor
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I just sold a rental property for $150,000. Closing date is

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I just sold a rental property for $150,000. Closing date is Nov 5, 2013. This is a property that I previously used as my primary residence from Jul 2003 to Sep 2005 (purchased for $156,060 on Jul 2, 2003) and rented out starting Sep 2005. I have rented it out since then with the exception of the last year and a half (May 2012) when I had it on the market for sale (it was vacant while on the market). The tax assessed value of the property is $192,700 (land value is $25,000). What capital gain tax am I subject to? Does the current assessed value of the property make any difference?
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
The current assessed value will not have any bearing on your capital gain for the sale.
You will start with your basis (cost plus improvements). The gain or loss will be decided on the sale price, the difference in basis and sale price will be your gain or loss.

Robin D. :

Calculate the adjusted basis of your rental property. The adjusted basis is the purchase price of the property plus any capital improvements you made, Subtract any depreciation you claimed on the property. Subtract the adjusted basis from the sale price of the rental property. On the service it looks like you had a loss of $6060 but the depreciation is going to be used too.

Customer:

Do I divide 156,060 (plus improvements) by 27.5 years to calculate annual depreciation? Or do I use 156,060 minus land value?

Robin D. :

You look at the old tax returns and see what depreciation was claimed.

Robin D. :

You would normally have a worksheet that shows each year's depreciation amount.

Customer:

Is that on Schedule E? If so, what block?

Robin D. :

No

Robin D. :

A worksheet would break down each year or

Robin D. :

look on Form 4562

Robin D. :

The Schedule E will have depreciation sorry

Robin D. :

if you have each of those years

Robin D. :

The problem with the E though

Robin D. :

is that is a total for all items depreciated

Customer:

Ok. So, my capital gain is calculated by using $150,000 (sale price plus costs associated with sale) minus depreciated value since Sep 2005?

Robin D. :

sale price plus costs associated with sale plus capital improvements

Robin D. :

Yes with correction above

Robin D. :

sale price should read cost price, sorry
it is cost plus improvements minus depreciation then the difference in sale (less costs of sale)

Robin D. :

$156,060 PLUS improvements MINUS depreciation then you take $150,000 add the sale costs and the difference will be your loss or gain

Customer:

Ok. Calculating depreciation though is based off property value (minus land value) divided by 27.5 for an annual depreciation rate? And THAT number (let's say $4500) is subtracted annually from original purchase price of $156,060?

Robin D. :

Correct

Customer:

So, basically 8 years x $4500 (in my example) = 36,000. 156,060-36,000 = 120,060 (depreciated value). Now let's say I have $13,000 in sales costs (realtor fees, etc.). $150,000-$13,000 = $137,000. My gain would be $137,000 - 120,060 = $16,940. Did I do that correct? Obviously, haven't included any capital improvements which would offset that $16,940.

Robin D. :

Correct

Robin D. :

You will find that a program when doing your tax return will walk you through all the above pretty easily

Robin D. :

They normally just ask questions such as cost, any improvements, sale price and so on

Robin D. :

then teh program will do the calculations for you and carry all to the appropriate forms

Customer:

Yeah, I've used turbotax every year. It seems pretty good, but wanted to get an idea of how much I might get stuck with. Sounds like it might not be much since I've had over$10,000 in improvements (capital).

Robin D. :

Just make sure you retain copies of everything

Customer:

Definitely. Ok, not the answer I was WANTING (I was hoping tax assessed value would play into the mix) but you've been very helpful. Thank you! I don't suppose being active duty military changes anything does it?

Robin D. :

Not due to the selling of rental property

Customer:

shoot! haha Thanks again! I think that answers everything.

Robin D. :

Had you not used for rental you could have extended your use time of the property if it was miliatry related

Robin D. :

You are most welcome

Robin D. :

I really enjoyed working with you – please feel free to request me again when you come back to ask another question.

Customer:

Oh wait one more...does it matter that it has been vacant for the past year? not a rental?

Robin D. :

no, except you would continue with depreciation til date sold

Customer:

Ok. Thanks again! That's all...(I think). Have a good day!

Robin D. :

Do the rental portion first then TT will ask if you sold

Robin D. :

Your positive rating is always thanks enough.


 

Customer:

Ok...I will. Thanks for the tip.

Robin D. :

Glad to assist

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7266
Experience: 15years with H & R Block. Divisional leader, Instructor
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