Cap gains on second home sale partial rental

Forum|Forum|5 years ago
March 17, 2021
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We owned a beach place for 8 years. Seasonal rental only and we used sometimes on weekend off season. Sold in 2020 and TurboTax figures a huge gain. Every year we had a passive loss due to minimal rentals and minimal use by us but year round expenses. Normal years we put in how many days we used and how many were rented. Turbo tax says we must take 47% of the sale price less 47% of the closing expenses and it deducts from what we put in as the asset price in 2013. How do I put in the assessments we paid this year and in one past to lower the gain by increasing the basis. How does depreciation work here and if we had a loss every year how do we have a gain? An example with dummy numbers would be great.

M

Mike9241

assessments are not a cost of sale but are among the costs associated with the renting of the property.

assuming you rented for more than 14 days and personal use exceeds the greater of (1) 14 days or (2) 10% of days rented during the year then:

all rental income is reportable

deductible expenses:

1) interest subject to mortgage interest limits

2) property taxes

3) casualty losses

4) renting expenses such as advertising, agent fees not attributable to operating the property as a dwelling ( ie expenses associated with personal use)

5) other expenses deductible only to the extent income exceeds categories 1 to 4 above

gain on sale

must be treated as 2 properties

gain attributable to personal use is a capital gain with no home sale exclusion

gain attributable to the rental portion is ordinary income to the extent of depreciation recapture. any remaining gain is section 1231 capital gain

under IRC section 121(b)(5)(A)

Gain is allocated to periods of nonqualified use
(i)the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to
(ii)the period such property was owned by the taxpayer.

The term “period of nonqualified use” means any period during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse.

so if during the years of ownership you rented it 160 days, vacant 900 (not temporary absences) days and the period of ownership was 2920 days non qualified use would be 1060/2920 or about 36%