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Taxpayer sold property seller finance. Original cost was…

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Taxpayer sold property seller finance...
Taxpayer sold property seller finance. Original cost was 230k, which included owner residence and land of 30k. Prior accountant had depreciated the unit and owner rented the unit to future buyer for approx. 1 year. Depreciation on owner's unit was 17k. Owner qualifies for 2 of 5, but has depreciation.
Sale price is 260k. How do I allocated the portion that is excluded, ordinary, and installment sale?
Submitted: 25 days ago.Category: Tax
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Answered in 41 minutes by:
3/26/2018
Tax Professional: Lev, Tax Advisor replied 25 days ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,677
Experience: Taxes, Immigration, Labor Relations
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Section 121 allows to exclude from taxable income the gain realized from the sale of taxpayer's primary home.

Requirements - as you mentioned - to own and used the property as a primary residence - at least two our of last file years before the sale.

We may NOT however exclude a part of the gain attributed to accumulated depreciation - $17k - that part will be taxable - but taxes as section 1231 gain - at reduced long term capital gain rates.

The sale will be reported on form 4797

You may choose not to use installment reporting method and recognize the full taxable amount in the year of sale.

Considering relatively small amount - that may be more beneficial.

If you choose the installment reporting method - you will need to use form 6252 to report an installment sale in the year the sale occurs and for each year you receive an installment payment.

Let me know if you need any help.

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Tax Professional: Lev, Tax Advisor replied 23 days ago

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