4797 - Capital Gains Portion

[Edsel]

Facts:  Tom bought a rental house in 2013 for $140,000, and this cost includes improvements.  Sold in 2017 for $200,000 contract price.  Other factors:  Closing costs $11,000, and Disallowed loss from Form 8582  $5,000.

Basis is thus some combination of $140,000 and $11,000 and $5,000.

Without focusing on the rest of the 4797, what is the LTCG portion attributable to this sale?

• a)  $60,000.  $200,000 minus $140,000 original purchase price plus improvements.
• b)  $55,000.  $200,000 minus adjusted basis of $145,000  ($140K + $5K in suspended losses)
• c)  $49,000.  $200,000 minus adjusted basis of $151,000  ($140K + $11K in closing costs)
• d)  $44,000.  $200,000 minus adjusted basis of $156,000  ($140K + $5K + $11K)

 

[Max W]

Is this a question from the EA exam?

Answer -C. The $5K goes to Sch E.

[Gail in Virginia]

Can I answer E?  There should be some depreciation.....

[Edsel]

Thanks Max & Gail.

Gail, you're correct, there is depreciation, and it affects 4797 income, but does not affect LTCG.

Max, I think you're telling me that the $5K loss will be allowed on Sch E, and thus will not have to be added to basis.

 

 

[Catherine]

2 hours ago, Edsel said:

the $5K loss will be allowed on Sch E

Yes.  All remaining loss is taken in the year of disposition.

[Max W]

The loss is not added to basis.  It is taken on line 22 of Sch E.  

[Edsel]

The software (Sch E) has a checkbox that asks if the property has been disposed.  Checking this box prevents the loss from being swallowed up into the 8582 mishmash.

Max and Catherine are right on top of this.

Thanks to all...