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I purchased a home in 2008 and used it as a residence until…

I purchased a home in...
I purchased a home in 2008 and used it as a residence until 12/31/11. From 1/1/12 thr 10/31/12 I rented it while leaving in a condo that I purchased. In 11/2012 the home was sold on a short sale. My purchase in 2008 was 520K and my sale in 2012 385. In 2012 I did not live in the house. How do I report the sale. Is it a sale of a business property or is it a sale of a home (I'm filing sch e for the home for 2012 depreciation included).
Thank you.
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7/5/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,220
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D :

Hello and thank you for using Just Answer,
Your property is going to be reported as both for 2012, rental sale and personal. You see you are allowed to exclude up to $250,000 of gain (if single $500,000 if married) on your personal residence if you owned and used it for 2 out of the last 5 years before the sale.

Robin D :

If you have a gain (sale for more than your basis) then you will also need to recapture the depreciation. Since you appear to have a loss you will not need to do that.

Robin D :

If you have a loss on the sale of your main home for which you received a Form 1099-S, you must report the sale on Form 8949 even though the loss is not deductible.
Enter "L" in column (f) and enter the amount of the nondeductible loss as a positive number in column (g).
Some of the loss you would be allowed and that would be the loss that is attributable to the time it was used for rental.

Robin D :

If you are not used to completing these types of tax forms, I would suggest you get a tax professional to complete the return for the year of sale.

Customer:

I owned it since 2008. 2012 is the only year it was rented and I lived at a newly purched home. It was also sold in 2012 at a loss (520-385). No 1099-S was received. how do I report the sale and how can you report it as both. I thought that I needed to complete sch E for income and expenses and than a sale of a personal home with the depreciation recaptured?

Customer:

It was a short sale The balance on the note was 446K

Robin D :

You have to report the sale because you are receiving the 1099S, that is correct. Normally on a loss when you sale your personal home you do not report. As you owned it from 2008 to 2012 and you use it as your home from 2008 to 2012, you meet the 2 out of 5 years test so you cannot use the loss on the portion of time you actually lived there.
You will show the sale on 4797 and Schedule D but when it comes time to show the loss on the Schedule D you have to prorate by days you rented it.

Robin D :

You will not have to recapture depreciation because it is a loss.

Robin D :

You will show the rental time on the Schedule E and claim your depreciation for that time in 2012.

Robin D :

You are have sold one property but for tax purposes it had 2 distinct purposes for use.

Customer:

I lost you. Sch e for income and expenses. I did not receive a 1099-S and it is a loss-so I don't have to report and since it is a loss no need to worry abount recapture?

Robin D :

You have to report the rental first on the Schedule E, take care of that first. Then you report the sale because (even if you did not get a 1099S ) this was rental you are claiming on the E.

Robin D :

You do not get to use the entire loss (personal use period) so you will have to prorate on teh Schedule D the actual amount of the loss.

Robin D :

The Recapture is not required because it is a loss

Robin D :

So

Robin D :

Do the Schedule E
then the Schedule D and 4797

Robin D :

The actual amount of loss will be prorated by total days owned against the days for rental use.

Customer:

ok so once I took care of the Sch E I report it as a sale of a PERSONAL home at a loss on sch d / 4797 with a proration for the purpose of excluding the rental period

Robin D :

You report it as a sale of property with your prorated amount for your rental time, so the loss will carry over to the return.
Your loss from the sale is only allowed because it was used for rental. The days used for rental against the total days is the percentage of the loss on the sale you would be allowed.

Robin D :

It is not a sale of personal home any more (totally) because you changed it's use to rental but as it was so short lived you are still held to the personal use portion to report the actual loss on teh sale.

Robin D :

I know this is a little more complicated then just reporting a sale. That is why I advised that you may wish to use a tax professional.

Robin D :

I do not know if you are wanting to use a software or go the paper route but either can be confusing.

Customer:

I'm using turbo tax

Robin D :

Then do like I said and finish the Schedule E(Turbo Tax may ask if you sold or disposed of) but remember what the Schdeul D should look like to check in teh end. The entire loss should not be on the Schedule D.

Customer:

So I report a sale of a business property and the amount of loss allowed is a proration for the rental period. The software is suppose to allocate between sch d & form 4797 based on the rental period and that is the thing to watch for

Robin D :

Correct

Customer:

thank you

Robin D :

You are most welcome

Robin D :

Best wishes

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,220
Experience: 15years with H & R Block. Divisional leader, Instructor
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