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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15312
Experience:  15years with H & R Block. Divisional leader, Instructor
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I lived in a house years and then rented it out. The initial

Customer Question

I lived in a house for five years and then rented it out. The initial loan was 85k but I refinance it at 109k. I sold the house at 135k but received 125k after realtor fees. My accountant says I need to pay 6k to the government. What is the correct process for claiming these earnings?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.


First let me break down the sell of your home rules.

If you lived in the house for 2 of the last 5 years prior to the sell, you can exclude gain up to $250k if single and $500k if married filing joint.

Your gain would be the difference in cost plus improvements and the sell less expenses to sell.

Assuming your gain is $40,000 ($125k - 85K) and you lived in the house for the time needed you would not have tax to pay on the gain but you would need to pay tax on the DEPRECIATION RECAPTURE. This is the amount of depreciation you claimed while using for rental. You cannot exclude that amount.

If you did not meet the 2 year time needed to exclude then you have a $40,000 gain on a rental property and that is taxable.

This is all reported on Schedule D and Form 4797 when you file. Capital gains tax rates would apply at long term holding rates. These are based on your total income for the year.

Please advise if you need more information or rating in a positive way is acceptable.

Expert:  Robin D. replied 1 year ago.

If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.