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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29575
Experience:  Taxes, Immigration, Labor Relations
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We bought a house in 4/29/2013. We cashed out my husbands

Customer Question

We bought a house in 4/29/2013. We cashed out my husbands retirement to meet the 20% down payment, which was taxed about 15,000. My husband was transfered to Casa Grande az in May of 2014, We couldn't sell it so, we rented it to someone with the intention to buy in July of 2014. They moved out, in May 2015. We rented it again to someone with the intention to buy July 30, 2015 and closed In August 24, 2015.
We sold it for just over 18,000. More than the loan. So basically got his retirement back and an extra 3000. So my question is do I seriously have to pay 5,600 tax on 18,000? that is almost a third!!!
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Based on your information - the property was converted to rental.I am not clear how you calculated teh gain.Generally - you will need to use an adjustment basis - take your purchase price and purchase expenses PLUS improvement expenses MINUS depreciation for teh time teh property was rented = that is your adjusted basis.The gain = (selling price) MINUS (adjusted basis) MINUS (selling expenses)The gain is taxable income - however because teh property was owned more than a year - it is a long term capital gain - taxed at reduced rates - for most people not more than 15% - but mainly that depends on your other taxable income.State taxes are extra.Assuming you correctly calculated teh gain - I am still not clear how you determined the tax liability...
Customer: replied 1 year ago.
turbo tax calculated it, but didn't ask me any of those questions, I guess I should have someone do my taxes for me this year?
We keep track of our expenses for our "farm" ---my husband trains rope horses, and ropes on them, winning money--- on a calendar, basically we just write down all of the miles he travels, the money we spend on hay, the stall fees, and any money he wins at ropings, and money he loses. there are no "official receipts" is that bad if we get audited?
Customer: replied 1 year ago.
So is the house considered an investment because I had to rent it? I have another house in New mexico that I bought before the one I just sold . We had to rent it as well, same story couldn't sell it for what we owed, we bought when the market what was high, and then it tanked. So which one is considered my second home? Since the one I lived in last just sold and the one I lived in first I still have as a rental. I didn't buy another house because I didn't want to get stuck again. So I am renting...
Expert:  Lev replied 1 year ago.
I would be glad to verify your tax reporting - but would need to see tax forms.Generally - I would expect 15% tax on long term capital gain plus 5.6% Arizona tax - total ~20%.It is possible that your tax liability is higher but we would need to verify all circumstances..Regarding supporting documents - you are required to keep adequate records.If the auditor would find your records not adequate - the risk is that deduction would be disallowed - and as result - you may have additional tax liability.
Customer: replied 1 year ago.
I don't know what a tax auditor would consider adequate records, is there some kind of guidelines? I don't like phone calls, I don't remember what was said very well. This way I know exactly what I asked, and what you answered.
Expert:  Lev replied 1 year ago.
Section 1.274-5T(c)(2)(i) provides that, to substantiate each element by adequate records, the taxpayer must maintain: 1) an account book, diary, log, statement of expense, trip sheets, or similar record; and 2) documentary evidence that, in combination, are sufficient to establish each element of an expenditure. The account book, diary, log, statement of expense, trip sheet, or similar record must be prepared or maintained in such manner that each recording of an element of an expenditure is “made at or near the time of the expenditure.” § 1.274- 5T(c)(2)(ii). The phrase “made at or near the time of the expenditure” means the elements of an expenditure are recorded at a time when, in relation to making the expenditure, the taxpayer has full present knowledge of each element of the expenditure, such as the amount, time, place, and business purpose.
Expert:  Lev replied 1 year ago.
For your reference - you might want to see IRS publication 463 page 25 Are Adequate Records?You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.Documentary evidence. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses.Adequate evidence. Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information.The name and location of the hotel.The dates you stayed there.Separate amounts for charges such as lodging, meals, and telephone calls.A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.The name and location of the restaurant.The number of people served.The date and amount of the expense.If a charge is made for items other than food and beverages, the receipt must show that this is the case.Canceled check. A canceled check, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose..I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.