I have rented my investment property for 1 yr before living there for 3 yrs. After 1 yr of renting I have a buyer for my investment property. If I transfer the investment profit to my primary residential loan(age of loan is 1 yr and 1 month) will I still have to pay the taxes on the gain?
If I want to deduce from the profit all the small home improvement expenses(for these 4 yrs I have owned it) like paints, light fixtures, storm door, garage opener etc producing the receipts is it acceptable or only major ones will account?
If I want to pay a part of the profit for my new car loan(7 months old), will I have to pay taxes? Can I split the gain to pay my car loan(direct check from buyer's bank to the car dealer) and the rest for primary home loan? In this case how will the taxes be? Can I pay for my primary home improvement (direct check from buyer's bank to home improvement company) without paying taxes?
If there are any taxes how much % will that be? I appreciate our replies.
2007-12-19 03:22:02 · 3 answers · asked by ct2008 1 in Business & Finance ➔ Taxes ➔ United States
If you lived in this home for two years during the last five year you can claim a primary home exclusion of $250,000 if you are single and $500,000 if you are married and filing MFJ. Your gain is the difference between what you paid for the property reduced by the depreciation during any periods you rented the property or increased by any improvements you made to the property and what you sold it for less the cost of sale. During the period you rented the property there would have been deductions for repairs but that would not effect the gain on the sale.
What you do with the proceeds from this sale has little if any effect on the taxability of those proceeds. Paying off a car loan has no effect at all on you income tax situation.
The issues you have presented requires careful consideration that can be difficult in this format. You would be well advised to seek professional tax advise before filing your tax return.
2007-12-19 03:49:44 · answer #1 · answered by ? 6 · 1⤊ 0⤋
When you sell the property, you will figure out your gain on that property and how much tax you will owe. What you do with the proceeds is a non-issue. The days of deferring a gain on your home by rolling the money over to a new home are long gone. If you owe taxes, you need to pay them.
As for work on the house, the IRS classifies expenses as either a capital improvement (such as replacing a roof) or repairs and maintenance (such as painting). Capital improvements are added to the basis of the property and while you were renting it out, the property was depreciated. Repairs could be deducted on the schedule E while you were renting the property out. Repairs while this was your home are not deductible. (If you forgot to deduct the repairs, it's too late, you said the rental was 4 years ago.)
When you sell the property, you must calculate the gain that it based on depreciation recapture (allowed or allowable) and the gain from the value of the property going up. The depreciation recapture is taxed at your marginal tax rate (a maximum of 25%) and true gain is taxed at a maximum of 15% (you may be eligible to exclude up to $250K of the true gain if you meet the sale of home rules).
2007-12-19 03:51:58 · answer #2 · answered by Anonymous · 1⤊ 0⤋
The capital gains from the sale of an investment property are taxable income. You can deduct expenses of maintaining and fixing the property. Its best to have receipts and/or a record of the expenses.
Did you sell your car, too? I wasn't sure what you meant by "the profit for my new car loan." If you mean taking the profit from the investment to pay towards the car, that's fine, but it won't effect your taxes. Taxes are based on "events" like selling a major asset, receiving compensation for working, etc. It doesn't matter how you use the money, you are still taxed on the capital gain or the income.
2007-12-19 03:39:59 · answer #3 · answered by hottotrot1_usa 7 · 0⤊ 0⤋
If it was an investment property for 3 yrs, you should have been deducting repairs and maintenance as you were going along - you can't deduct 3 yr old expenses now.
I don't know what you're talking about with your car loan = every transaction is separate - you pay taxes on real estate gain s - you can't offset it with anything else
and you can't transfers gains from selling one property to improve another - you're asking for big IRS trouble with this mess - you better have a CPA do your tax return this year
2007-12-19 04:25:04 · answer #4 · answered by Anonymous · 1⤊ 0⤋