Post by EmilieMadison on Mar 29, 2013 12:01:34 GMT -5
Ok, I've googled, I've checked the IRS.gov site, and I'm not quite finding what I'm looking for. So, hopefully someone here can offer some advice while I wait until after tax season to talk to a pro
We bought a house in 2004 as our primary residence. We tried to sell in 2009 but the market was so bad it didnt happen. So, we have been renting it out since then.
Our wonderful tenants have decided to buy a house and we've decided it's time to try to sell since the market has rebounded enough in our area. It looks like, based on comps, we'll be able to sell it for slightly less than what we paid for the house originally.
So, when we sell (the house is going on the market tomorrow), we will not have lived in the house for at least 2 of the last 5 years, meaning we will have to declare the sale on our taxes (either gain or loss).
I think we're going to be SCREWED by this. The gain/loss is determined by the fair market value of the house at the time we converted it to a rental property (plus and improvements we made for it to be a rental, less any depreciation we've taken). But the reason we started renting it was because the value was so low, we couldn't sell it.
So, I'll use nice round numbers for the example. Say we purchased it for $200K but put $20K into the home for personal improvements. When we started renting it out, the value was $130K. We put $2K of improvements into it to convert it for rental use (bringing it to $132K) and then claimed approx $5K in depreciation during the time it was rented, bringing it to a value of $127K. If we sell it for $160K, we'll actually be taking a $40K loss (not even including the improvements). But according to the IRS, it seems like they'll look at this as a $33K profit (less selling expenses like commissions, etc) .
Am I looking at this all wrong?? Does anyone actually know anything about this? EEEK.