Tax help with lot split & partial sale. - Posted by sirwebbie

Posted by sirwebbie on April 11, 2007 at 09:30:45:

Thanks, that was what I thought, and yes I have waited way too long to tackle this problem. Thanks

Tax help with lot split & partial sale. - Posted by sirwebbie

Posted by sirwebbie on April 11, 2007 at 24:21:32:

I purchased a property with two houses on it in 2005. This last year, 2006, I split the lot into two separate properties and sold one of the homes. My question is how does this affect my taxes. My loan on the two houses was for 98,000. I netted 60,000 on the sale of one of the homes, which left me oweing $38,000 on my mortgage. I then refinanced the remaining home for $57,000 cashing out $19,000. I know that normally you don’t have to pay taxes on loan money, but I have no idea how to treat it on my taxes. I claimed depreciation on the 2 houses in 2005, so how do I explain what I did on the tax form. Any advice would be greatly appreciated. Thanks, sirwebbie

Re: Tax help with lot split & partial sale. - Posted by Tim

Posted by Tim on April 28, 2007 at 21:30:03:

Sounds like you made a good deal!

I don’t know your basis for the two houses, so assume it is $98,000. You could allocate based on the county appraisals.

Say you decide the house you sold had an original cost basis of $50,000. You would pay LTCG (assuming you owned it more than 12 months) of $10,000, and depreciation recapture for the 2005 and 2006 depreciation. There would be no tax issue with the refinance.

You should get a CPA to help you, but hopefully this will help you get a better handle on it.

Again, good job on your deal. Sounds like you did well!

Re: Tax help with lot split & partial sale. - Posted by dealmaker

Posted by dealmaker on April 11, 2007 at 08:54:55:

Gosh, I’m not the only one to wait until the last minute, LOL. I’d probably go file for the “automatic” extension and then call a CPA in a week after the rush has died down.

Taking out the mortgages for a minute, since they have nothing to do with the tax consequences of the sale, you’ll need to “apportion” the value of the two houses. Since you depreciated them you’ve really already done this, and then figure the gain on the one you sold.

This is one that you don’t want to tackle yourself. I had something similar this year where I’d bought a house on 4 lots, sold the house and 2 lots right away and then just sold the other 2 lots in '06. I just gave all 3 HUD-1s (purchase, both sales) to the CPA and let him extrapolate my cost of the 2 lots just sold.

Good luck.

dealmaker