OG US Tax Experts...

I am completely confused and depending on how I mess around with the numbers it creates a huge swing from refund to owing. 

Bought a condo in 2006...paid $133,500.  By 2011, I had to rent it out because the market had dropped.  I rented it out at a break even/loss each year til 2016.  I sold it in 2016 for $113,500 (also had to put $10K in to it to sell and paid $4K in closing costs). 

In previous years I think I used 60K as the cost basis for the place because that is what I could have sold it for give or take. 

Now, if I continue that it shows a huge profit and I am fucked on taxes....when the reality is that I lost $$ on the place to the tune of $35K or more. 

Any help?  I'm not an attractive man, but will post nudes. 

Yikes.... Pretty sure if you've been using 60k as cost basis, deviating from that would be dangerous.

Technically if it was worth 60k when you converted to a rental. The dif between buy price and 60k is a loss you can't recoup. (Much like if you had sold it for 60k, you wouldn't be able to claim a loss).

Isn't cost basis supposed to be the amount you paid?

I am going to end up calling an tax preparer. The thing that has me most worried is that I swing between paying like $12K to getting a significant amount back...I wasn;t really looking for a tax benefit (and am scared of an audit because of it) but there is no way I should owe money on this deal...

I'd call an accountant, not some hr block preparer.

OnCall - I'd call an accountant, not some hr block preparer.


Agreed...I'm out of my depth on this. 

Isn't the cost basis what you paid? What backs up the $60k, just your opinion? If so, I think you gotta show the amount paid as the cost basis. 

Im not a tax expert. I'm in finance/accounting. 

acm5060 - 

Isn't the cost basis what you paid? What backs up the $60k, just your opinion? If so, I think you gotta show the amount paid as the cost basis. 

Im not a tax expert. I'm in finance/accounting. 



That seems to make sense to me, I could have put in a very high value there and I would have gotten greater depreciation credit each year and have gotten a tax benefit.  That seems far too arbitrary and at the end of the day I didn't actually make any money (I lost a bunch) regardless of how you do the numbers. 

Your basis was never $60K.  Your basis is what you paid for it and anything else you paid to improve the property.  

Did you use the $60k as a basis for anything on prior years taxes?

It sounds like you used $60K as your basis for depreciation when it was a rental property.  That just means you took a smaller depreciation expense than you should have.  The IRS will not care about that.  The IRS cares about what you paid for the property - that is your basis.

Your purchase price and sale price should be public record. Pull the figures from the state website and use it to substantiate booking a loss on the sale. I don't know what you were thinking using a lower cost basis in the past. You would have had a larger depreciation deduction on your rental property every year if you had the proper book value. You might want to amend some past returns and get some money back.

Yeah sounds like you just underreported your depreciation expense each year. 

 

I'm pretty sure you're good using the $130k as the cost basis. Also, turbo tax has a lot of questions on its forum. Bet you can find an answer. 

The $60k has nothing to do with your cost basis. Ignore that and go buy what you actually paid, if there are questions you can back it up with documents showing the amount you paid.

#1 I think you're perfectly in the right using $130k as a cost basis, but

 

#2 I've heard the IRS is at an all time low of revenue agents and doesn't care about anyone making undue $1m/year

Bad advice in here. A tax expert should tell you the cost basis to utilize is the value of the property when you converted it from a personal asset to a business/income asset.

The tax code does not allow for a deduction on a loss on personal real estate. For every Joe here they pay $135k, sell for $60k, no deduction for $75k loss.

For all purposes when you turned it into a rental, you 'sold' it to 'op rental co' for $60k, you then broke even for a few years, paid $10k to improve (will raise basis by 10k though). Your cost basis should also be written down for depreciation.... Selling it for $110- cost basis would be a huge gain for 'op rental co'.

The tax person should also tell you the audit risks should you file corrected returns based on a higher cost basis (which is an option, but very risky based on what you indicated, possibly criminal)

Dysqo - Bad advice in here. A tax expert should tell you the cost basis to utilize is the value of the property when you converted it from a personal asset to a business/income asset.

The tax code does not allow for a deduction on a loss on personal real estate. For every Joe here they pay $135k, sell for $60k, no deduction for $75k loss.

For all purposes when you turned it into a rental, you 'sold' it to 'op rental co' for $60k, you then broke even for a few years, paid $10k to improve (will raise basis by 10k though). Your cost basis should also be written down for depreciation.... Selling it for $110- cost basis would be a huge gain for 'op rental co'.

The tax person should also tell you the audit risks should you file corrected returns based on a higher cost basis (which is an option, but very risky based on what you indicated, possibly criminal)

What's constitutes a fair sale price to op rental co? The amount he chose to depreciate it for? That seems too easy too game. He could've just as easily depreciated at $130k and that would've been the assumed sales price to op rental co. 

 

I am out of my league here. I'm a GAAP accountant, and I know enough about tax law to know that it doesn't have to make logical sense. 

Just use your actual cost basis.

If they come after you, play ignorant and hope that our public servants dont strip you of your freedom and assets.