Tax im­pli­ca­tions of sell­ing in­vest­ment condo at a loss

Sun Sentinel Broward Edition - Homespot - Broward East - - REAL ESTATE Q&A LIVING G SPACES - By Ilyce Glink and Sa­muel J. Tamkin

Tri­bune Con­tent Agency Q: I pur­chased

a con­do­minium in 1997 for $78,000 and rented it out shortly af­ter my pur­chase. I took the stan­dard de­pre­ci­a­tion dur­ing tax fil­ing pe­riod each year. The con­do­minium was paid in full in 2004.

I sold the condo for $60,000 and net­ted $52,000. I have never sold a prop­erty of any kind be­fore this. Bot­tom line, will I owe any taxes on the $52,000 I re­ceived for the sale of the prop­erty? A:

At first glance, you look at your sit­u­a­tion and think that you have had a loss and shouldn’t owe any fed­eral in­come taxes on the sale. That may still be the case but you’ll have to go through the num­bers to find out what your tax bill is.

You owned the con­do­minium for about 16 years but sold it that last year. In essence, you were able to de­pre­ci­ate half of the con­do­minium’s value. We don’t know what value you gave to the con­do­minium to start the de­pre­ci­a­tion. Usu­ally, when you buy a con­do­minium you are able to take de­pre­ci­a­tion on the build­ing por­tion of its value but not the land com­po­nent.

But if we as­sume you al­lo­cated about 10 per­cent to the land and 90 per­cent to the con­do­minium, you were able to de­pre­ci­ate about $35,000 over the years. On the sale of the con­do­minium, the IRS would want you to re­pay that de­pre­ci­a­tion ben­e­fit at a 25 per­cent rate or about $8,750. That sum would be due in taxes to the IRS.

You held the prop­erty for in­vest­ment pur­poses and you’re not a pro­fes­sional in­vestor. As such, you may have had losses in your own­er­ship of the con­do­minium dur­ing the years you owned it and were not able to take those losses.

On the sale of the con­do­minium, it ap­pears that you have a loss of about $18,000. Given that loss and any other carry-over losses you might have had over the years, you may not have any tax to pay or you’ll cut down any taxes you may owe as a re­sult of those losses.

One ad­di­tional item that you might need to con­sider, while you sold your con­do­minium for $60,000, you prob­a­bly also had other ex­penses that you put into the con­do­minium and the as­so­ci­a­tion over the 16 years you owned it.

The money you put into the unit and build­ing -- if any of that money was for cap­i­tal ex­penses -- that money would have in­creased the ba­sis (or cost) of your con­do­minium and in­creased your loss.

As you can see, it can get rather com­pli­cated, even for a real es­tate in­vest­ment of $78,000. When the tax prepa­ra­tion pro­grams come out, you can give it try to see what you might owe, or you’ll have to talk to a tax spe­cial­ist to help you fill out the tax forms.

Good luck. Ilyce R. Glink’s lat­est book is “Buy, Close, Move In!” If you have ques­tions, you can call her ra­dio show toll­free (800-972-8255) any Sun­day, from 11a-1p EST. Con­tact Ilyce through her web­site, www.thinkglink. com.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.