The way I understand it is that if you depreciate the property you will have to recapture the depreciation when you sell. You would however get your profits up to 250K tax free, except for the recapture of depreciation.
You, however have an interesting case. Being that you own the property with others that you are not married to, I would check & see exactly how much you would be entitled to. I don’t know if they would split the 250K up amongst all of the owners or if they would allow 250K to each owner.
Best to do like HR says & consult a CPA on this. Your situation is a bit complicated.
I have tax question that I was hoping one of you maybe able to answer?
My Sister and I bought a rental property in 1998 for 134,000. We have been collecting rents in the amount of 925.00 a month for the past two years. The property now appraises for $242,00. If I was to move into the property for two years could we sell without paying taxes on the appreciation with the new tax laws?
Example
Sales price = $242,000.00
Sales commission $14,520.00
Less the depreciation we claimed while the property was rented. Note sure what this would amount to?.
So we have 242,000.00 for the sales ? 14,520.00 for the dales commission ? deprecation lets say 2,000.00 ? our purchase price 139,000
Posted by Dave T on February 12, 2001 at 01:49:23:
The tax code does allow you to convert an investment property to your principal residence. Then if you meet the 2 year ownership and use requirements, your profit on the sale is eligible for the capital gains exclusion on the sale of a principal residence.
Now the interesting part of the question is who gets the tax treatment. Assume that only you occupy the house as your principal residence for two years, then sell the house. Your share of the profit would qualify for the capital gains exclusion, however, you sister’s share would be taxed as ordinary income on the sale of a second home.
If, instead, your sister continued to rent out her share of the house while you occupied your share as your principal residence, then upon sale her share of the profit would receive capital gains tax treatment on the sale of investment property. Of course, this assumes that she does not use a 1031 exchange to defer her capital gains taxes.
Let’s go a little further with this example. Let’s say that you occupy your share of the house as your principal residence for two years then move out. Now let’s say that your sister moves in and occupies the house as her principal residence for two years, THEN the property is sold. Now both you and your sister are each eligible for a $250K capital gains exclusion on your respective shares of the profit from the sale – even if you rented out your share of the house for the two years that your sister occupied her share as her principal residence. Any depreciation taken (or that should have been taken) simply reduces your adjusted basis (and increases your profit) in the property.
Posted by BillW. on February 10, 2001 at 20:50:29:
Except that it might be worth $350,000 in two more years. But, still you might not have to pay tax. I believe the amount of gain is 250K before tax applies if you’re single, and 500K if married. Good for you, now get one for your sister too.
BillW
Under the new tax laws you would not owe any taxes, so long as you live in property 2 out of 5 yrs, prior to selling. So if you move into property & occupy it as your primary residence for the next 2 yrs., you would not owe any taxes.
You really need to check with a GOOD cpa on this one. I’ve talked to a few about this, and some are more informed than others.
The legal question is: if it was a rental, and you move into it, can you turn it into a personal rez to get the exclusion, and, if so, what happens to all the depreciation you previously took on the whole house? Again, it’s not as cut and dry as it looks. I don’t think you are going to get the exact outcome you desire. Again, talk to a good cpa.
Posted by Redline on February 12, 2001 at 20:32:48:
I would add the fact that the market 2 years from now will likely not be anything like the market today - so that “appreciation” may be long gone by then!