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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I sold a house 50 % Business Use & 50% personal use, ( two

Customer Question

I sold a house 50 % Business Use & 50% personal use, ( two family house) I bought the house on 2001 for 300 sold for 700, during the 45 days Y bought two property one 2 family rental property 100% business use an apartment for my. how do I report that
transaction on my taxes,
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
When the property has two units - one is rental and another - personal - the sale is treated as the sale of two separate properties - and should be reported separately.Specifically for rental unit - you MAY use section 1031 and defer the gain - but must use a qualified intermediary. If you received the money - that transaction doesn't qualify for section 1031.
Customer: replied 1 year ago.
I never received the money the day of the closing the lawyer keep my check, when I bought the he paid with his trust account
Customer: replied 1 year ago.
what form I need to use to report the section 1031
Expert:  Lev replied 1 year ago.
That is fine as long as your attorney is a qualified intermediary.In thi scase you will qualify for section 1031 exchange.But ONLY for the business property.You will use form 8824 to report that transactionhttp://www.irs.gov/pub/irs-pdf/f8824.pdf
Customer: replied 1 year ago.
what about the second property that i bought, why dont qualify
Customer: replied 1 year ago.
I paid 450,000 for the rental property that I bought can I deduct the full amount.
Customer: replied 1 year ago.
Do I have to report the sale on form 4797
Expert:  Lev replied 1 year ago.
You must report an exchange to the IRS on Form 8824, Like-Kind Exchanges and file it with your tax return for the year in which the exchange occurred.
Form 8824 asks for:
Descriptions of the properties exchanged
Dates that properties were identified and transferred
Any relationship between the parties to the exchange
Value of the like-kind and other property received
Gain or loss on sale of other (non-like-kind) property given up
Cash received or paid; liabilities relieved or assumed
Adjusted basis of like-kind property given up; realized gain
Please be sure to report ONLY rental property that you sold and rental property that you purchased.
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Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.
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Do not report your personal property on that form - that would disqualify the whole transaction - because personal use property may not be used for section 1031.
Yes - you should report the sale of your rental property on form 4797 as you woudl normally do.
However specifically fro section 1031 - use form 8824
Customer: replied 1 year ago.
The 50% of the sale of the house sold was 450,000. - the basic of the Property sold 200,000 use 50% = (100,000 +250,000 exclusion - 450,000) I have to report 100,000 gain on the personal used. It is that correct
Expert:  Lev replied 1 year ago.
For the personal use property - you separately calculate the gain.That gain may be excluded under section 121 if that is your personal residence.To qualify for such exclusion - the property should be owned and used as a primary residence at least two out of last fife years before the sale. The limit for exclusion is $250k for a single person or $500k for married couples filing jointly.That is regardless how proceeds are used. You are not required to purchase another property to qualify for the exclusion.
Customer: replied 1 year ago.
thanks I got the personal part, the rental part 50% 450,000 the basic 100,000 gain 300,000 the house I bought 450,000 can I defer the 300,000 on the exchange using form 8824
Expert:  Lev replied 1 year ago.
Yes - because the full proceeds from selling your rental property $450,000 are used to purchase another rental property - you may defer 100% of taxable gain.
That is based on assumption that the replacement property will be used as rental - not as personal.
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Customer: replied 1 year ago.
when I file form 4797 it show a gain
Expert:  Lev replied 1 year ago.
That is correct - and there would be potentially two types of gain - section 1231 gain which is taxed as long term and the depreciation recapture which is taxed as ordinary income.
You will also report separately the sale of the land and the sale of the building on form 4797 - as two separate assets.
However any gain may be deferred under section 1031 when proceeds are used to purchase a qualified replacement property.
Expert:  Lev replied 1 year ago.
You would need to start with form 8824
Part III, is used to calculate your gain on the disposition (sale) of your old property and the adjusted cost basis of your replacement property.
Any taxable gain recognized will be transferred to Form 4797 and should be allocated between different types of income.
For instance
- Ordinary income under recapture rules Form 8824 line 21 -->> Form 4797, line 16
- Section 1231 taxable gain Form 8824 line 22 -->> Form 4797
Deferred gain will be on form 8824 line 24 - that part is NOT going to 4797.

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