Sold Our Rental House

[davemartin88]

We sold a house we've had rented (off and on) for the last 10 years last week, need the cash to start building our retirement house and it's about 15 years old so didn't want to have to deal with what we believed would be an increasing number of failures and expenses. The house sold for about $50K more than we paid for it, we'd hoped to get more but in this market, glad to get it sold in about 45 days.

I'm having a little trouble figuring out the tax we're going to owe with the unrecaptured 1250 gain rules. Over the last 10 years, we've had about $80K in depreciation that was claimed on our taxes so I think that will have to be subtracted from our basis in order to figure our overall gain rate and this would end up being taxed at 25%. With other expenses and house improvements, there won't be a lot of gain so thinking I'll owe about $20K so guess I'll have to send a pretty good size check to cover this for my 2Q tax estimate.

Do I have the basic concept right? For most years, we weren't actually able to gain the full tax break because our losses were limited by our income so not sure if that comes in to play? Thanks in advance for any thoughts. Have always done our own taxes using Turbo Tax or something similar- maybe I'll plug the sale numbers in to this years program just to get an idea what the impact would be using 2009 estimated numbers?.

 

[calmloki]

Think you have it pretty much right:
Bought for x
Depreciated $80k
sold for x + $50k
Will be taxed long term cap gains rate (15%?) on $50k
regular income rate on $80k

Alternative minimum tax rate will be by to kick you in the shins.

IMO

Oh - and congratulations!

 

[Buckeye]

Have you been using tax software over the years to do your taxes? Create a fake tax return for 2008 that answers "yes" to the question "did you sell your rental home this year?" Don't forget about state taxes if applicable. This will give you a good estimate of what you will owe.

 

[davemartin88]

Have you been using tax software over the years to do your taxes? Create a fake tax return for 2008 that answers "yes" to the question "did you sell your rental home this year?" Don't forget about state taxes if applicable. This will give you a good estimate of what you will owe.

Will give that a try, I have to dig through some information first to make sure I get the allocation between the land and the building right- the land has appreciated at a higher rate than the building at least according to a comparison between the original assessment from the year we started renting out the house. Thanks.

 

[Buckeye]

You've only been depreciating the building value over the years but I don't think you allocate the sales proceeds to land and building separately at the sale unless you did some sort of special deal selling the buildings separately from the land. It's been about 4.5 years since I sold my CA rental property and prepared the taxes so those in the know can correct me. I have a friend who structured his sale of a bunch of apartments like this (land in one contract, buildings in another contract) quite a few years ago in Phoenix. He saved himself a ton of taxes from what I understand.

 

[davemartin88]

After entering the house in this year's Turbo Tax program as if I had made the sale, it showed a gain of over $100K which includes the previous depreciation- sounds about right given the ballpark numbers I used. It also showed that my tax bill would have gone down in 2008 by over $5K which got me thinking.

I realized that what I had missed in trying to figure this out that the entire gain is considered a capital gain, I had thought the depreciation portion of the gain would be considered regular income. Given I've had plenty of long term capital losses I've not been able to carry over for some time, looks like next year is the year I'll at least partially catch up! Bad news I had the losses, good news is they should eliminate the taxes on the sale.

Hope I'm right, lol.