What I can deduct for sale of a investment property?

Question

I just sold a investment property, I would like what kind of items I can deduct for ferderal income tax, can I deduct the closing cost for purchase of the property.....etc?

Answer 1

Yes, you may deduct from the profit of the sale any actual costs you incurred in effecting the sale of the investment. The actual sale price is not your total profit. Expenses incurred in operating and selling the property reduce your profits accordingly.

Answer 2

It really depends on the type of investment property, but generally you add any improvements to the cost basis of the property to reduce your gross gain, any selling expenses like advertising, including most of the closing costs, seller paid items, real estate commission etc.

If you have been depreciating the property you will be hit with re-capture which backs out all the depreciation write-off you took over the years which increases your gain and increases the cap gains tax you will pay, but there's no avoiding that, unless of course you never depreciated the property which would surprise me.

I'm assuming you didn't 1031 exchange the property, so you are simply cashing out and paying the taxes due.

I hope you made a large profit on your property, and if so, I'm wondering why you wouldn't have done a 1031 exchange and continue your tax deferral benefits as well as continuing to build your real estate portfolio?

I'm happy to review your situation on a more personal basis if you have plans for additional investment and I offer 2 hours of free consultation.

Regards,
Robert Noakes
Real Estate Investment Consultant
Sr. Mortgage Planner
415.652.8112