Capital gains/loss rental

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Capital gains/loss rental

Postby hoops777 » Sat Dec 08, 2012 12:24 pm

I forgot to add something in my old posting.I am selling a rental of 9 years with about a 70k gain plus 9 years of depreciation.Can I deduct the 15k I spent on landscaping the property and the window coverings I had installed.It was a brand new home.I also installed granite countertops in the kitchen instead of keeping the laminate the builder put in.
My other question is I only lived in the above house for one year and bought another house and moved into it for 2 years and then rented it for 2 and 1/2 years when I moved back to Calif.Isold the second house in 2009 and had a loss of about 105k not counting any depreciation for the 2 and 1/2 years I rented it.Can I use this loss against my gain in the other house?I am not sure because of the time I lived in it and rented it along with the fact it sold over 3 years ago.Thanks.
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Re: Capital gains/loss rental

Postby sscritic » Sat Dec 08, 2012 12:29 pm

hoops777 wrote:I forgot to add something in my old posting.I am selling a rental of 9 years with about a 70k gain plus 9 years of depreciation.Can I deduct the 15k I spent on landscaping the property and the window coverings I had installed.It was a brand new home.I also installed granite countertops in the kitchen instead of keeping the laminate the builder put in.

Improvements increase your basis; they are not "deductions."

Increases to Basis
These include the following.
• Additions and other improvements that have a useful life of more than 1 year.
http://www.irs.gov/pub/irs-pdf/p523.pdf
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Re: Capital gains/loss rental

Postby hoops777 » Sat Dec 08, 2012 1:12 pm

Wow.I have never heard that before.So if someone spends 25 k remodeling their kitchen,for example,you are saying they are suppose to pay taxes on that when they sell?Or is it the house will probably increase in value so in essence you are paying taxes on the profit increase.
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Re: Capital gains/loss rental

Postby sscritic » Sat Dec 08, 2012 1:14 pm

hoops777 wrote:Wow.I have never heard that before.So if someone spends 25 k remodeling their kitchen,for example,you are saying they are suppose to pay taxes on that when they sell?Or is it the house will probably increase in value so in essence you are paying taxes on the profit increase.

Gain = proceeds minus basis. Larger basis equals smaller gain and less tax. Have you ever sold a stock or mutual fund?
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Re: Capital gains/loss rental

Postby hoops777 » Sat Dec 08, 2012 1:37 pm

Yes I have but I have to be honest and admit I have neglected educating myself on taxation issues.The jargon is like greek to me.So the money spent on improvements is added to the cost of the house which sort of ends up the same as deducting it if I am understanding you.
I just received an email from the woman who does my taxes.She sent me a depreciation form showing what she has done.Is she correct in what she has been doing....My house cost 252k.On the sheet she has been using cost net of land 110,330 and depreciating from that total.So for 9 years it is about 27k total depreciation.She also said I can only aplly 3k in stock losses to offset the cap gains on the rental house.
So if I have a 70k cap gain and 27k in deprec=97k gain,I can only deduct 3k in my stock losses?
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Re: Capital gains/loss rental

Postby pshonore » Sat Dec 08, 2012 1:40 pm

For a rental, aren't improvements supposed to be depreciated as well?

As for the 105K loss, was that reported on that years taxes and any excess carried forward?
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Re: Capital gains/loss rental

Postby hoops777 » Sat Dec 08, 2012 1:51 pm

The house I am selling for a gain,I lived in for 1 year.I paid about 15k for new landscaping.I installed 2500 sq ft of tile.I put in shutters and other expensive window coverings which are still there.I tore out the cheap builder countertops and installed granite.I lived there after I did all of this and then I moved and it became a rental.So now after reading the IRS website it appears I can add all of those things to my cost basis?
I do not know how my tax person filed the 105k loss on my other rental,but I will find out.The fact I lived in that house for 2 years and rented for 2plus before selling,I am now assuming I can use those losses in their entirety against my gains?Is there some pro rating because of the time I lived in and rented it?
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Re: Capital gains/loss rental

Postby rr2 » Sat Dec 08, 2012 2:06 pm

hoops777 wrote:The house I am selling for a gain,I lived in for 1 year.I paid about 15k for new landscaping.I installed 2500 sq ft of tile.I put in shutters and other expensive window coverings which are still there.I tore out the cheap builder countertops and installed granite.I lived there after I did all of this and then I moved and it became a rental.So now after reading the IRS website it appears I can add all of those things to my cost basis?
I do not know how my tax person filed the 105k loss on my other rental,but I will find out.The fact I lived in that house for 2 years and rented for 2plus before selling,I am now assuming I can use those losses in their entirety against my gains?Is there some pro rating because of the time I lived in and rented it?

Don't you need to determine fair market value as of the day that it became a rental? That would then become the starting basis. Any improvements you made since it became a rental would then increase your basis.

Edit: The above is incorrect. See sscritic's reply below.
Last edited by rr2 on Sat Dec 08, 2012 5:29 pm, edited 1 time in total.
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Re: Capital gains/loss rental

Postby hoops777 » Sat Dec 08, 2012 2:21 pm

I hope not.How do you determine the fair mkt value 2 years after you actually purchased it?Also..all the improvements I made before I moved in would not count toward my basis? :oops:
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Re: Capital gains/loss rental

Postby sscritic » Sat Dec 08, 2012 2:57 pm

rr2 wrote:Don't you need to determine fair market value as of the day that it became a rental? That would then become the starting basis. Any improvements you made since it became a rental would then increase your basis.

I like your tax law. Buy a house for $100k. When the value reaches $1 million, convert it to a rental for one day, then sell. $900k of taxable capital gains just disappeared as the money went into your account! :)
Last edited by sscritic on Sat Dec 08, 2012 2:58 pm, edited 1 time in total.
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Re: Capital gains/loss rental

Postby rr2 » Sat Dec 08, 2012 2:58 pm

hoops777 wrote:I hope not.How do you determine the fair mkt value 2 years after you actually purchased it?Also..all the improvements I made before I moved in would not count toward my basis? :oops:

They do count toward your basis as the fair market value would have increased as a result of the improvements.
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Re: Capital gains/loss rental

Postby pshonore » Sat Dec 08, 2012 3:04 pm

hoops777 wrote:The house I am selling for a gain,I lived in for 1 year.I paid about 15k for new landscaping.I installed 2500 sq ft of tile.I put in shutters and other expensive window coverings which are still there.I tore out the cheap builder countertops and installed granite.I lived there after I did all of this and then I moved and it became a rental.So now after reading the IRS website it appears I can add all of those things to my cost basis?
I do not know how my tax person filed the 105k loss on my other rental,but I will find out.The fact I lived in that house for 2 years and rented for 2plus before selling,I am now assuming I can use those losses in their entirety against my gains?Is there some pro rating because of the time I lived in and rented it?
I seem to recall a loss on sale of rental real estate is considered an ordinary loss (Form 4797) and would be deductible against ordinary income (wages, interest, etc) and could result in a NOL (Net operating loss) which can be carried forward or back in some circumstances but please us how your tax person handled it.
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Re: Capital gains/loss rental

Postby hoops777 » Sat Dec 08, 2012 5:09 pm

OK.Ihave been using google like a maniac and think I have found the answers to most of this.I guess the house I sold in 2009 for a loss can only carryover 3k because the 2 rentals are not being sold in the same year.That being said my 3rd and final rental in the great state of AZ. would sell today at a loss of about 70k,so I am assuming I can use that amount less depreciation towards the gains in the other if I sell them both in 2013.
I am also now assuming that on the profitable home I lived in for a year,the 30k or so I spent on improvements while living there can be applied towards my basis.
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Re: Capital gains/loss rental

Postby rr2 » Sat Dec 08, 2012 5:27 pm

sscritic wrote:
rr2 wrote:Don't you need to determine fair market value as of the day that it became a rental? That would then become the starting basis. Any improvements you made since it became a rental would then increase your basis.

I like your tax law. Buy a house for $100k. When the value reaches $1 million, convert it to a rental for one day, then sell. $900k of taxable capital gains just disappeared as the money went into your account! :)

Thanks for setting this straight. :) I need to read more.
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