Closing Today! Maybe
This borders on TMI, but here goes. My husband and I separated more than two years ago. Our rental home just happened to be vacated, and we were fixing it up to put on the market when I moved in. I established residency (100% homestead exemption, etc) and have lived there since July 2001. <IMG SRC="images/forum/smilies/icon_smile.gif"> good news, we are back together and would like to make these last two years not a total financial disaster by taking advantage of not paying any capital gains on the sale of this house. Lucky us, we found a buyer in one week who is ready to close today. The closing papers seem to indicate that we will have to pay (report to IRS) a tax on the depreciation of the rental home we claimed together since 1997. In our case, we stopped filing joint returns in 2000 and there was rental income between 1997 and 2000. Here comes the question... Should I allow my husband to quit claim the deed to me, just to make it crystal clear that this is my residence? What liability will this bring that I should be aware of?
New question: If I don't have a quit claim deed only in my name, am I only able to exclude 50% of the gain? We bought it together 14 years ago. What if the date on the quit claim deed is the same as the date of sale?
e[ Edited by ellie_b on Date 09/02/2003 ]
ellie_b,
As far as the capital gains exclusion is concerned, you are in the clear as long as the gain is under $250K.
If you and your husband decide to file a joint tax return for 2003, just pay the depreciation recapture tax and exclude the capital gains. No need to worry about executing a quit claim deed -- you don't have to jump through any hoops here as you clearly had ownership and can demonstrate occupancy.
As long as the capital gain to be excluded is less than $250K, only one spouse needs to occupy the property as a principal residence to qualify for the capital gains exclusion -- even though you both are on title.
Consult your professional tax advisor for specific details. If you are really concerned about the ownership and occupancy issues as they relate to the capital gains exclusion, just ask your professional tax advisor if it would be more advantageous for you both to file separate tax returns for 2003.
[ Edited by DaveT on Date 09/03/2003 ]
Thanks, I also feel like it is obvious that I am entitled to the 250,000 exclusion (yes, it's less than that). Now, I'm confused by the depreciation recapture - do we have to report all of the depreciation we claimed. We lived in it together from 89 to 93, rented it from approximately 93 to 2000, I lived in it from 2001 to today.
The tax is 25% of the total depreciation we claimed?or just since 1997? I report this on form 2119?
thanks again.
Quote:I'm confused by the depreciation recapture - do we have to report all of the depreciation we claimed.Yes, and maybe. The depreciation recapture tax is based upon the amount of depreciation you were allowed. If your actual depreciation taken is less than this amount, you report the higher allowed amount.
If your actual depreciation taken is higher that the allowed amount, you report the amount taken. Only the allowed amount will be recaptured at 25%. The depreciation amount above the allowed amount will be taxed as ordinary income.
Quote:We lived in it together from 89 to 93, rented it from approximately 93 to 2000, I lived in it from 2001 to today.
The tax is 25% of the total depreciation we claimed?or just since 1997? I report this on form 2119?Depreciation taken (or allowed, whichever is greater) after May 6, 1997 must be reported on Form 4797 as depreciation recapture income.
Form 2119 was declared obsolete in 1997 with the tax code changes. Consult IRS Publication 523 for further instructions on how to report the sale of your house.