Sale of Rental House and Taxes

[afmussig]

We sold a rental house in July 2000 and we were going to use the money to
build a new home. When we went to file this year our tax guy informed us
that we have to pay about 22,000.00 in taxes!!!! Is there a way around
this?

He advised us that if we wanted to re-invest the money into building a new
rental we would have had to fill out some forms before the sale of the
house.
Is that true?

Should we re-invest the money in buying another rental to avoid paying the
22,000.00? How long would we have to keep the new rental before we could
sell it and build a new home?

Any advise is appreciated. Please email us at B15...@imajis.com
Thanks!

[easy2000]

afmussig wrote:
>
> We sold a rental house in July 2000 and we were going to use the money to
> build a new home. When we went to file this year our tax guy informed us
> that we have to pay about 22,000.00 in taxes!!!! Is there a way around
> this?
>

Sorry, but not now.

> He advised us that if we wanted to re-invest the money into building a new
> rental we would have had to fill out some forms before the sale of the
> house.
> Is that true?
>

You would have had to exchange your old property for new, like kind
property to defer tax recognition of the gain. It's too late to do that
now.

> Should we re-invest the money in buying another rental to avoid paying the
> 22,000.00? How long would we have to keep the new rental before we could
> sell it and build a new home?
>

That won't work. It's too late for you to avoid or defer taxes on your
gain. You should have talked to your tax guy before you sold your rental
house.

> Any advise is appreciated. Please email us at B15...@imajis.com

Sorry, I respond to questions where I see them.

easy2000

[D. Stussy]

On Sun, 25 Feb 2001, afmussig wrote:
> We sold a rental house in July 2000 and we were going to use the money to
> build a new home. When we went to file this year our tax guy informed us
> that we have to pay about 22,000.00 in taxes!!!! Is there a way around
> this?

Assuming no math errors, no.

> He advised us that if we wanted to re-invest the money into building a new
> rental we would have had to fill out some forms before the sale of the
> house.
> Is that true?

Generally no. However, there is a provision for EXCHANGING property, but what
you would get in return would be a RENTAL property, not your residence.

> Should we re-invest the money in buying another rental to avoid paying the
> 22,000.00? How long would we have to keep the new rental before we could
> sell it and build a new home?

Reinvesting the money into another rental will not avoid paying tax on the gain
on sale of the one you old.

[bherms]

Along these lines... my step father sold his rental house with a
contract for deed. TurboTax doesn't seem to handle this very well,
but I filled out form 6252 and forced the depreciation amount to 1/3
of the yearly amount since the sale was May 1, 2000. I use this
(along with the payment schedule) to figure this and future year's
capital gains and interst income.

I added the remainder of the not fully depreciated items to the basis
for the house. (eg. Water heater cost 288... 88 had been depreciated
so added the 200 remaining to the basis of the house. My fuzzy
understanding is I don't have to recapture anything unless I claimed a
loss on the property in previous year's and used the loss against
ordinary income.)

Does this sound right so far?

Thanks,
Bill

I'll relate here what seems (to me) messed up about the TurboTax
interview on this process, for anyone interested.

At schedule E they ask if you sold this property, but say don't report
here if it is an installment sale.

Then under "sale of home and installment sales" they have you fill out
some info but then say if you ever used this as rental, don't enter
the transaction here (unless it's an exchange or non-depreciable
property). They send me to "Property Sales and other transactions"
and say to list it under 'other sale of business or rental property".

But when I get to that section they say don't report any sale that is
connected with a rental reported on schedule E.

So it seems to send me into an endless loop.

[Art Kamlet]

In article <3a9a63f9....@news.rnet.com>, bherms <bhe...@rnet.com> wrote:
>Along these lines... my step father sold his rental house with a
>contract for deed. TurboTax doesn't seem to handle this very well,
>but I filled out form 6252 and forced the depreciation amount to 1/3
>of the yearly amount since the sale was May 1, 2000.

Were you using AMCRS Straight Line before the sale? One
advantage of rental property is you get an accelerated method
(Perhaps 200DB HY) to take a hoigher depreciation expense early
on. Some of the 1250 rules are to tackle the difference between
accelerated depreciation and straight line.

So I recommend checking on the method that had been used for
depreciation in past years and stay consistent.

> I use this
>(along with the payment schedule) to figure this and future year's
>capital gains and interst income.
>
>I added the remainder of the not fully depreciated items to the basis
>for the house. (eg. Water heater cost 288... 88 had been depreciated
>so added the 200 remaining to the basis of the house. My fuzzy
>understanding is I don't have to recapture anything unless I claimed a
>loss on the property in previous year's and used the loss against
>ordinary income.)

Technically your basis increased when you added capital
improvements and the depreciation now has to be recaptured into
sale income. And it is not clear that all property had the same
depreciation convention and method and class life. While the
water heater might have been depreciated with the house, a
refrigerator might not.

--
Art Kamlet Columbus, Ohio kam...@infinet.com