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QUESTION: Purchased a home in December 1994 for $202,000.

Lived there full time until November 2000.

Rented it out from November 2000 through June 2005.

Moved back into it July 2005 and lived there through march 2009.

Moved out again and rented it out from April 2009 through March 2012.

Sold it, closing on April 20 2012 for $325,000.

The net proceeds were $213,353

What is the depreciation for my 2012 taxes?

Are the net proceeds exempt from taxes? I have owned no other properties. I file Single no dependents. Thank you.

ANSWER: James,

Thanks for your question.

You have a rather complex situation due to it being a rental and a primary residence; in addition to changing laws. Based on the dates shown, you did occupy the home as your primary residence for 24 of the 60 months prior to the sale.

Your depreciation for 2012 will be 3/12 of the normal annual depreciation.

The law changed in this regard on Jan 1, 2009.  Any rental use after that date will reduce the amount of gain you can exclude.  This article gives a good summary of how to handle this part.  http://www.orexco1031.com/Downloads/E-Report.AmendmenttoSection121.pdf

In addition, you will pay tax on the portion of the gain represented by depreciation allowed or allowable.  This is known as depreciation recapture and is not excludable under the rule regarding the sale of your primary residence.  

Hope this helps.

John Stancil, CPA





---------- FOLLOW-UP ----------

QUESTION: On the Adjusted Basis of Home Sold Worksheet how do I determine the AMT depreciation?  Thank you very much.

Answer
AMT depreciation is basically straight line depreciation, without any bonus depreciation or accelerated depreciation.  

Real property (this is the legal definition of the house or other building) held for rental/investment may only be depreciated for Regular Tax purposes under the “straight-line” method, over a useful life of 27.5 years.  Thus, a property with $275,000 allocated to the building would be depreciated at the rate of $10,000 per year.

Personal property (this is the legal definition of things such as furniture, appliances, carpeting and the like) may be depreciated for Regular Tax purposes under an “accelerated” method over a useful life of five years.  An accelerated method allows a larger depreciation deduction in the early years, in recognition of an obsolescence or decline-in-value factor that you see in new property (cars are a good example).

For purposes of the AMT, however, personal property may be depreciated only by using a straight-line method.  Thus, an AMT item will be generated in the early years if the accelerated method is used. There should be no adjustment for real property.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

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DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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