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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29569
Experience:  Taxes, Immigration, Labor Relations
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I have a rental condo in MA that I am looking to sell. The

Customer Question

I have a rental condo in MA that I am looking to sell. The original purchase price was $210k back in '99. I have not lived in it since 2003. I am selling it for $485k, and the outstanding mortgage is somewhere around 40-50k. My intent is to use the gains from the sale to buy a primary residence for myself and my family in CA within the next year. What are the tax implications of doing this?
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
The gain realized woudl be added to your taxable income.The gain is calculated as (selling price) MINUS (adjusted basis)The basis is your original purchase price.It is adjusted by improvement expenses (PLUS) depreciation (MINUS) and some other items.The mortgage payoff will not affect calculations. When you took the loan - it was not your taxable income - correct? because it was expected to be paid back. So - when you pay it back - that amount is not deductible.You may defer (not avoid!) gain realized on that sale if proceeds are used to purchase another rental property - that is so-called section 1031 exchange.However only investment or business property qualifies for section 1031. If you purchase a personal residence - section 1031 may not be used.
Customer: replied 2 years ago.
Thanks for the prompt reply. Two other questions: How do I calculate the depreciation on the condo? Are there stock calculators? Also, do I depreciate from when purchased - ie 1999 - or from when rented - ie 2003?
Expert:  Lev replied 2 years ago.
I assumed that depreciation was calculated and reported on your tax return when you reported rental income.Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.Depreciation begins when a taxpayer places property in service for use in a trade or business or for the production of income. The property ceases to be depreciable when the taxpayer has fully recovered the property’s cost or other basis or when the taxpayer retires it from service, whichever happens first.The first step - to determine the basis for depreciation - when you converted the property from personal to rental use - the depreciation basis is the lesser of your basis and the fair market value of the property at that time.That value is allocated between the land and the building.The land is not depreciable. Only the building.Residential rental property is depreciated over 27.5 years.The percentage you will use to depreciate teh property may be found in this publication - see page 73 Table A-6. Residential Rental Property Mid-Month Convention Straight Line—27.5 Years
Expert:  Lev replied 2 years ago.
You may use online calculators to estimate depreciationFor instance a rough estimate - if the property was rented from 2003 - total 12 years - and depreciation basis is $210k the depreciation woudl be $210k / 27.5 * 12 = $91,636.That amount should been claimed as deduction for years the property was rented - and your basis should be reduced by that amount.