All Forum Posts by: Katie Ripp

Hi Jason,

The expenses that you are paying to rehab the property are required to be captured in the cost basis of the property when you purchase it. You cannot deduct or capitalize them before you own the property. 

When you sell a rental property, the portion of the sale that is taxed as capital gain can be reduced by capital losses from stock transactions. So if you are selling a property in a given year, it might be worthwhile to talk with your CPA and see if selling some stock at a loss would be helpful (since otherwise capital losses are limited to $3,000 as Joshua mentioned). 

Hi Zachary,

You are right - that is a lot of equity! But man that interest rate is great. 

From a tax perspective, I am assuming you would like recognize $0 of the gain on your property in this potential 1031 exchange. Assuming that's true, I would recommend looking for a replacement property (or properties - you can purchase multiple in the exchange) with value of at least $725K (selling price).  To defer all of your gain, you'll want to trade up in value, replace all the debt (meaning new properties have at least $350,700 of debt), and not take any cash from the exchange (this is boot which = taxable gain).

As for replacement property, it just has to be real property - meaning it can be commercial, STR, land, etc!

Hope this helps!

This is a great question, and love all the responses!

I would take a look at a couple different things, at least speaking from a tax perspective. 

First off, if you have passive activity losses carryovers (unused losses from previous years) those losses wil be recognized to the extent of your passive income (gain) from the sale. If you have more passive losses than your gain is estimated to be, you would have net taxable loss to recognize.

If you want to sell and not pay tax, I would definitely look into 1031 exchange. This would allow you to defer tax into a new real property investment. 

If nothing else, and you decide to sell with a 1031, something to consider would be trying to time the sale towards the beginning of the calendar year so it gives you max time to potentially re-invest into something that will offset the gain, and/or strategize some additional tax savings. 

Hi Gloria! I am sorry to hear about your property. 

Insurance proceeds are considered taxable income to you. The amount you would need to report as potentially taxable gain is total insurance proceeds less your adjusted tax basis in the property (your mortgage doesn’t get considered into this calc). 

If you choose to reinvestment those funds into another investment property, you may be able to defer the gain using a sec. 1033 election. 

In order to facilitate a 1033 you would sImply use those funds to either rebuild on the land, or the replacement can be a new investment propert purchase. As long as it’s similar or related in service or use. 

Then with your tax return your CPA would make the election to defer the gain into the replacement. You don’t have to work with a qualified intermediary like you do with a 1031. 

Your daughter can gift you the $31,000 equity by selling the house to you at a below fair market value price. She may need to file a gift tax return for the $31,000 gift depending on other factors. Generally speaking, as long as your daughter has not reached the $13M lifetime gift limit, the gift won't be subject to gift tax.

You would want to get a qualified appraisal for the the fair market value at the time of gift/sale, Zillow is not the most reliable :-)

Hi David! 

First of all, congrats on the new rental property purchase! Very exciting. 

The special allowance for active real estate losses is up to $25,000 in otherwise disallowed (passive) losses, and the modified adjusted gross income (MAGI) phase out range is $100,000-$150,000. Meaning that if you make $100,000 or less, then you can deduct up to $25,000 in rental losses. If you make $150K or more, then $0 of your rental losses are deductible.

To clear up one other thing, depreciation is required to be calculated and deducted on a rental property. So it should still be reported on your tax return, but limited by the passive activity loss limitations referred to above.

Any rental property expenses and depreciation might not be deductible in the first year, but they carry forward to future years to offset future passive income (including the eventual sale/gain of that property). So very important to still report them on your tax return!

As for the LLC, what you were told is incorrect. LLC's do not allow you to deduct any expenses or depreciation that you would not otherwise be entitled to. Including setting up an LLC taxed as a partnership. Having a rental property in a partnership would not change the overall deductibility of property expenses or depreciation, they would still be limited to the passive activity loss limitations (with the special allowance $25,000 mentioned above being a potential exception based on your MAGI).

I hope this is helpful! Happy to answer any additional questions.

This is one of those complicated areas of the tax code. Depending on the facts and circumstances of the agreement, it could either be treated either

1) the sale occurs as of the original agreement date, and then your taxable gain is generally spread out over the life of the principal payments as an installment sale (although I should mention any depreciation you've taken on your property could affect this), or
2) the sale does not occur until the lease option is exercised, and gain reported at that time. Income received prior to that date would be considered rental income.

Here's a good article on the facts and circumstances that would need to be considered: https://www.jmco.com/articles/real-estate/lease-options-sale...

How it is ultimately treated will affect both the buyer and seller. Like Ben mentioned, there are different factors to determine who in this scenario would have capital gain, and the amount if there's depreciation, and if any qualify for the primary residence exclusion. 

Would highly recommend consulting your CPA before entering into an agreement to understand!!

Yes you can amend 2022 still. As long as the property was ready (habitable) and available for rent (advertised for rent) then the property was in service. 

Assuming the above is true, you'll want to amend.

Michael is correct, you would want to ensure that a cost segregation study / bonus depreciation would actually reduce your tax burden before you get a cost seg done.  

I am not familiar with amending in Turbotax, but one thing to note is on the timeline for filing amends (you have some time still, but also good to be aware): Generally, to claim a refund, you must file an amended return within 3 years after the date you filed your original return or 2 years after the date you paid the tax, whichever is later.