RE: [taxchat] Basis question...

You’re right, Debbie.  The sales prices should be allocated.  Often we see the sale of a rental property where there are multiple depreciation schedules, not only for the original cost of the land and building, but also for improvements, appliances, etc.  Each item except the land will be running on its own schedule, so when the place is sold the owner is actually, for tax purposes, selling a package of things.  The sales price should be allocated based on the FMV of each item.  As a practical matter, we have our tax program (Drake) treat all the items as a group sale, and the program will allocate the sales proceeds in proportion to the various bases.  We used to do all the calculations manually, but the group sale process saves a lot of time.  In most cases I don’t expect the IRS would care much on the sale of a typical residential rental property.  Maybe they would want a more careful analysis if you were selling a building plus extras that included a lot of machinery or other Sec 1245 property that could have different implications that Sec 1245 property.  I assume other tax programs have the capability to do these group sales.

John Stevens, EA
Stevens Tax & Accounting, Inc., dba Equi-Tax
1870 - 50th St. E., Suite 8
Inver Grove Heights, MN 55077
651-773-5000
FAX 651-457-4529
equitax@unique-software.com
www.equitax.net

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From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Debbie Breedlove
Sent: 09/10/2008 12:20 PM
To: taxchat@yahoogroups.com
Subject: Re: [taxchat] Basis question...

 

Of course they get to use the basis of the land; that is part of their original cost.  Allocate the sale price and expenses of sale between the house and the land, and each has their own basis.  The house has been depreciated, the land has not.  So you'll have two sales, the land on page 1, the house on page 2.

 

 

 

From: Laura Morton

Sent: Wednesday, September 10, 2008 12:24 AM

To: taxchat@yahoogroups.com

Subject: [taxchat] Basis question...

 

Ok…might be stupid question, but right now it is about a $10K question!!

On the basis of residential rental property….

Purchased property - Established true cost of property backed out cost of land and then depreciated the balance accordingly.

Selling property- Established selling price, cost to sell, deducted depreciation taken but….don’t I add back in the value of the land at this point?  That is part of the original ‘purchase’ cost, just not depreciated. 

I can handle the outcome with the land added back, but not without….there is literally a 10K swing in the tax amount.

Thanks – and I remember that the stupid question is the one that goes unasked….

Laura M. Morton, EA

10 Key Solutions

Accounting Solutions for the Small Business

770-985-1621

770-985-6618 fax

www.10KeySolutions.com

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