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Real estate sale tax question involving depreciation recapture
Old 12-02-2017, 12:36 PM   #1
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Real estate sale tax question involving depreciation recapture

We recently sold a studio condo when the entire high rise building was acquired by a private group.

It had been rented and depreciated straight line for about 10 years.
The depreciation recaptured was about 35k and the difference between acquisition cost and sale price was also about 35k.
More than six months have occurred and we have paid estimated quarterly taxes for first 3 quarters to take care of this .

The rental was always listed as part of a larger catch all business on our personal schedule c income. We have been doing a SEP (self employed retirement account) from the total larger business income each year and the max (roughly 25%) goes in each December.

I was playing with turbo tax 2017 today and it appears that we can include some of this profit towards the SEP, on the pension contribution line of the schedule C, even though it makes the business show a loss for the year.
The actual sale gets listed on a schedule E as a business gain but doesn't flow directly into the schedule C as profit there. The profit taxed is essentially the capital gain plus the depreciation recapture.

I was wondering if anyone has actually used a rental property sale to fund a SEP like this? I seem to have two logical ideas that conflict.
1. If a business property sold at profit, it seems you could use some of that for funding retirement.
2. If business didn't make a profit, SEP is not allowed.
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Old 12-02-2017, 04:02 PM   #2
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Why have you been putting the rental on Schedule C? Is the condo owned by your business, rather than by you personally?
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Old 12-03-2017, 01:26 AM   #3
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On a schedule C, there are categories to list the various costs involved with real estate. Like taxes, repairs, maintenance, utilities, association fees. All my other businesses set up with individual ownership and liability use a schedule C. When I had a medical practice, I owned the business but the profits and costs went on a schedule C. Same with the consulting business. Hard to remember exactly how this was first set up, but assume was following turbo tax instructions and Irs directions. How do you file for Real estate gains?
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Old 12-03-2017, 06:41 AM   #4
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The only time personally owned real estate should be on a schedule C is if it was run more like a Hotel or B and B.

I think you have a bit of a mess and you should hire an accountant to clean this up for you.
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Old 12-03-2017, 07:46 AM   #5
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Well, if that is the case fortunately not the first mess or the last mess I've gotten into on this journey called life. : ).

Ty for the input and the heads up.
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