Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Author: twputnam One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121159  
Subject: Sale of Rental Home Date: 6/20/2004 9:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I am considering selling a home that I have rented out for several years. The gain on the property will be over $200,000. I have spent approximately $8000(painting, tile flooring, replaced carpeting, repaired failed dual pane windows, etc.) over the past 2 months preparing the house for sale.

It was rented for the 1st 4 months of the year.

Where do I put these fix-up expenses on my tax return next year? I would normally expect to enter them on schedule E as it was repairing and fixing items damaged by the last renter, but, the $200,000 gain in addition to my other income will eliminate my ability to take a loss in excess of the 4 months income, and thus I won't be able to use all the fix-up expenses.

It does not seem that they would be all be added to the home basis, especially the painting. Can I deduct these expenses from the sales price as fix-up expenses, or is there another way to handle them as they are legimate expenses incidental to the sale of the home?

I am just trying to take full advantage of legimate costs to reduce my gains.

Any guidance will be greatly appreciated.

t
Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72285 of 121159
Subject: Re: Sale of Rental Home Date: 6/20/2004 9:56 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
but, the $200,000 gain in addition to my other income will eliminate my ability to take a loss in excess of the 4 months income, and thus I won't be able to use all the fix-up expenses.

That is not correct. When you dispose of a passive activity (such as a rental), you can deduct all of your losses, including any that may have been deferred from previous years.

So don't fret about losing out on them.

--Peter

Print the post Back To Top
Author: twputnam One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72287 of 121159
Subject: Re: Sale of Rental Home Date: 6/21/2004 12:07 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Peter,

Thanks for the response, I think I intutitively suspected that, but, was unsure of the mechanics. I have glanced at Form 8582 and I believe that when I fill it out, it will assure me that I can take the expenses.

Thanks again!

t

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72288 of 121159
Subject: Re: Sale of Rental Home Date: 6/21/2004 12:37 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I have glanced at Form 8582 and I believe that when I fill it out, it will assure me that I can take the expenses.

A careful reading of the instructions to Form 8582 should reveal that the passive activity should NOT be reported on the form if you dispose of the activity in a fully taxable transaction (i.e. not a 1031 exchange, or an involuntary conversion, or similar).

Even if it weren't a fully taxable transaction, if you have 200k of taxable gain, that would be a passive activity gain and would offset a like amount if passive activity losses.

Either way, you shouldn't have a problem deducting your ordinary rental expenses.

--Peter

Print the post Back To Top
Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74395 of 121159
Subject: Re: Sale of Rental Home Date: 12/3/2004 5:29 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Just in case you do not know...

I am assuming that you (a) do want to sell and (b) are not concerned about the tax on the gain.

If you wanted to continue with some sort or RE investment you can use a 1031 tax deferred exchange to roll your tax basis forward. You can even do this with a deal where you no longer have any property management responsibilities. Hence you could defer the tax (only deferred) while shifting to a situation where you collect a check each month and do not get calls from tenants.

1031 is the section of the IRS code dealing with like-for-like exchanges. Pretty much any real estate for any other real estate held for investment purposes.

You defer the tax gain. Hence one day you will either have to pay tax on the gain or will leave it to someone who can avoid the tax on the gain by getting the property at its stepped up basis.

John

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Advertisement