Rental Property or Personal Residence
Dale Machalleck
A new client purchased a single-family dwelling on April 18th, 2023, for their personal domicile for $575,000. They spent approximately $75,000 for upgrades and remodeling. On January 11th, 2024, client obtained a Business License Certificate and rented their residence for approximately 3 ½ months while they traveled outside the country. Now they would like to sell their residence for $850,000 and purchase another single-family dwelling for their replacement personal domicile for $1,050,000. They would have lived in their current residence for approximately 15 months which they rented it for 3 ½ months. I reported their rental income and expenses on Schedule E for 2023. I reported the depreciable basis of their current residence as $575,000, less land, plus the $75,000 for improvements. If they sell their current residence, I will report the $850,000 less selling and closing expenses and deduct the adjusted basis of their current residence and this would be their deferred gain. Then add the amount of boot and the adjusted basis of their current residence and this would give them the basis in their new residence.
I believe the current residence qualifies as their personal domicile even though it was rented for a de minimis period? And if they own the new residence for at least 2 of the previous 5 years leading up to the sale and the gain was less than $500,000 they can deduct the gain?
ATLANTIS FINANCIAL ORACLES, LLC
Dale R. Machalleck
Managing Director
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