Homeowner · Sacramento, CA · Member since 2010 · 52 posts · 8 votes
I sold a rental house in 2015 for a 55K gain (after subtracting costs of sale, upgrades, etc). Depreciation recapture was painful. When I finally got a TurboTax Premier and modelled the sale, I was surprised the gain from the rental house (11 years holding) was not treated as Long Term Cap Gain, instead it was categorized as Ordinary Income (Form 4797 Sale of Business Prop). The problem is I cannot offset this gain with other LT cap losses that I have from stocks. LTCG rate would be lower for us. In addition, the boost in total income pushed us out of additional IRA limits for tax reduction.
I have 2 more rental properties that I can use to expense somewhat to lower the total taxes , but there is only so much I can do for this year that will be deductible.
I'd love to hear what you'd do to reduce the tax bill from selling a rental.
I sold a rental house in 2015 for a 55K gain (after subtracting costs of sale, upgrades, etc). Depreciation recapture was painful. When I finally got a TurboTax Premier and modelled the sale, I was surprised the gain from the rental house (11 years holding) was not treated as Long Term Cap Gain, instead it was categorized as Ordinary Income (Form 4797 Sale of Business Prop). The problem is I cannot offset this gain with other LT cap losses that I have from stocks. LTCG rate would be lower for us. In addition, the boost in total income pushed us out of additional IRA limits for tax reduction.
I have 2 more rental properties that I can use to expense somewhat to lower the total taxes , but there is only so much I can do for this year that will be deductible.
I'd love to hear what you'd do to reduce the tax bill from selling a rental.
Kenny
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Sounds to me like you've graduated past Turbo Tax. Your gains above what you paid for the property is subject to LTCG Whereas the recapture is up to 25% Yes, the transaction gets reported on the 4797 and the gain gets pushed to where it should be.
Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
10y
Because the programs can't interpret, think, or strategize, I would try some of the old fashioned pencil, paper, worksheet, forms, booklets, and back ground reading (e.g., jk lasser has some decent rental property sale info and Fishman's Nolo has some basics to accompany the IRS info).. Or turn it over to a cpa with rental property experience.. Best of luck
Homeowner · Sacramento, CA · Member since 2010 · 52 posts · 8 votes
10y
Steven and Michael think the gain from my rental house sale should be subjected to LTCG. That is interesting indeed, especially Steven is the tax guy. Thanks.
Madison Heights, MI · Member since 2014 · 471 posts · 132 votes
10y
Do you have any expenses that you can pay this month, instead of delaying them until next year? Have you paid all of your property taxes? Are there any repairs that need to be made that could be deducted as repairs in the current year? Do you have any stocks that you could sell this month at a loss that were held for less than a year? Can you take advantage of any charitable deductions this month?
Do you have any expenses that you can pay this month, instead of delaying them until next year? Have you paid all of your property taxes? Are there any repairs that need to be made that could be deducted as repairs in the current year? Do you have any stocks that you could sell this month at a loss that were held for less than a year? Can you take advantage of any charitable deductions this month?
Yes, I will be paying the entire property tax bill before year end. I found out a new AC would not help that much this year because it has to be depreciated.
Would a tree removal (~$1K) due to root encroachment to driveway a maintenance/repair or treated as improvement (as in taxes)?
As for stocks losses, if I can classify the rental sale as LTCG, this would be #1 in my book.
Do you have any expenses that you can pay this month, instead of delaying them until next year? Have you paid all of your property taxes? Are there any repairs that need to be made that could be deducted as repairs in the current year? Do you have any stocks that you could sell this month at a loss that were held for less than a year? Can you take advantage of any charitable deductions this month?
Yes, I will be paying the entire property tax bill before year end. I found out a new AC would not help that much this year because it has to be depreciated.
Would a tree removal (~$1K) due to root encroachment to driveway a maintenance/repair or treated as improvement (as in taxes)?
As for stocks losses, if I can classify the rental sale as LTCG, this would be #1 in my book.
That would depend upon the entire cost of the AC.
I would probably expense the tree as a repair in that case.
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
10y
@Kenny Tan tree = expense. No need to classify it as a land improvement. HVAC may be able to be expensed depending on the facts and circumstances. May be able to use the De Min Safe Harbor (DMSH) but us CPAs are still going back and forth about the applicability of the DMSH.
I'm curious as to why you are thinking ordinary gains on your rental. Did you hold less than one year? If so, do you engage in other flipping activities?
@Kenny Tan tree = expense. No need to classify it as a land improvement. HVAC may be able to be expensed depending on the facts and circumstances. May be able to use the De Min Safe Harbor (DMSH) but us CPAs are still going back and forth about the applicability of the DMSH.
I'm curious as to why you are thinking ordinary gains on your rental. Did you hold less than one year? If so, do you engage in other flipping activities?
Brandon - DMSH I am not familiar, thanks for bringing this point up.
As for ordinary income, no I held the said property for 10+ years. Collected rent and depreciated all along. TurboTax premier decided the sale proceeds as ordinary income.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
Too late now but in the future maybe you should consider a 1031. Year end what can you do? Though probably not much, buy all supplies you might need next year, if you have office rents maybe you can prepay those (?? @Brandon Hall), any and all minor repairs, get systems serviced (A/C, etc), pay advertising if it costs money, etc. My income is going up every year and there is only so much you can do...but you are in the right category. No income/no money is a much worse situation to be in:)
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
10y
@John Thedford haha loved the end of your post. There are a few things we can do. The first is to buy supplies, equipment, make repairs, etc. Basically anything you feasibly need to do for your rentals.
Next we can scrub your accounts and find passive losses or capital losses that are being carried forward or may have been forgotten about.
Third we can cost segregate your other rentals and deduct the depreciation you haven't been using in the current year. This often provides for a nice current year write off and may even fully cover your tax exposure.
We have options, but as you can see, TurboTax is certainly not the answer.
@John Thedford haha loved the end of your post. There are a few things we can do. The first is to buy supplies, equipment, make repairs, etc. Basically anything you feasibly need to do for your rentals.
Next we can scrub your accounts and find passive losses or capital losses that are being carried forward or may have been forgotten about.
Third we can cost segregate your other rentals and deduct the depreciation you haven't been using in the current year. This often provides for a nice current year write off and may even fully cover your tax exposure.
We have options, but as you can see, TurboTax is certainly not the answer.
All good suggestions, could you expand on " ...cost segregate your other rentals and deduct the depreciation you haven't been using in the current year." Are you referring to assets/improvements that I have not depreciated?
@John Thedford haha loved the end of your post. There are a few things we can do. The first is to buy supplies, equipment, make repairs, etc. Basically anything you feasibly need to do for your rentals.
Next we can scrub your accounts and find passive losses or capital losses that are being carried forward or may have been forgotten about.
Third we can cost segregate your other rentals and deduct the depreciation you haven't been using in the current year. This often provides for a nice current year write off and may even fully cover your tax exposure.
We have options, but as you can see, TurboTax is certainly not the answer.
All good suggestions, could you expand on " ...cost segregate your other rentals and deduct the depreciation you haven't been using in the current year." Are you referring to assets/improvements that I have not depreciated?
No, he is referring to the ability to have someone like myself who specializes in that to go out to the property and perform a cost segregation study which involves splitting all of the components of the property down into as much detail as possible to depreciate. This allows us to depreciate them individually at their applicable class life as opposed to depreciating the entire building over 27.5 years or 39 years.