Couple tax questions -

1. Is rental property sold a "business asset" or a "capital asset"?

2. When I calculated my basis (form 8824 Part III) I only used fees/escrow/cost/ realtor fees from the purchase and sale of the original property along with depreciation recapture. Am I ALSO supposed to deduct  escrow fees / cost  / exchange cost to our accommodator - EXETER of course :-) for the purchase of 2 properties we traded into?

3. On form 8824 Part III do I need list my (old) PD off loan or new loan amounts anywhere?

Thank you so much

Diane

Hi Diane,

See my answers below.  

Diane:

Couple tax questions -

1. Is rental property sold a "business asset" or a "capital asset"?

It depends on whether it is used in your trade or business (business assets) or whether it is held for investment (capital assets).  Rental properties are generally capital assets.

2. When I calculated my basis (form 8824 Part III) I only used fees/escrow/cost/ realtor fees from the purchase and sale of the original property along with depreciation recapture. Am I ALSO supposed to deduct  escrow fees / cost  / exchange cost to our accommodator - EXETER of course :-) for the purchase of 2 properties we traded into?

Yes, your routine closing costs on the acquisition are factored into the cost basis calculation as well.

3. On form 8824 Part III do I need list my (old) PD off loan or new loan amounts anywhere?

No, not under this section. 

Thank you so much

You are most welcome. 

Diane

1. Is rental property sold a "business asset" or a "capital asset"?

It depends on whether it is used in your trade or business (business assets) or whether it is held for investment (capital assets).  Rental properties are generally capital assets.

I have been back and forth on this with myself.  I always filed my rentals on schedule E so I thought "capital asset" because my home business (nothing to do with the rentals) is on schedule C . Then I read other articles and think ok, "business asset". We had a 4 unit & a 5 unit residential rental property that we sold (exhanged) What do you think, "Business or capital asset"?

Most importantly, whether I put "capital or business asset", will it affect my exchange in any way?

Regarding my other question on cost basis, I guess I have to refigure it. This is what I had for my 4 unit-

 bought the property 10 years ago for $232,000

add in escrow fees/cost to originally

buy the property AND subtract escrow

realtor fees and cost to sell which is  + $65,436

equals.................................................   $297,436

minus Depreciation for 10 years            -$65,791

sold the property for                              $835,000

so my total basis was ..........................$603,335  

NOW I can subtract from that ($603,335) escrow fees on the 2 properties we exchanged into, right?

Thank you Mr Exeter

Hi Diane,

I'm sorry about missing this post on our discussion board.  I just noticed that we never responded. 

Diane:

1. Is rental property sold a "business asset" or a "capital asset"?

It depends on whether it is used in your trade or business (business assets) or whether it is held for investment (capital assets).  Rental properties are generally capital assets.

I have been back and forth on this with myself.  I always filed my rentals on schedule E so I thought "capital asset" because my home business (nothing to do with the rentals) is on schedule C . Then I read other articles and think ok, "business asset". We had a 4 unit & a 5 unit residential rental property that we sold (exhanged) What do you think, "Business or capital asset"?

Yes, I agree with you.  Rental property should be filed as a capital asset on Schedule E.  The terms are often used interchangeably and often mean the exact same thing, but for your purposes the correct category would be capital asset.

Most importantly, whether I put "capital or business asset", will it affect my exchange in any way?

No, capital assets held for investment or business assets held for investment or used in a business are all treated the same for 1031 exchange treatment purposes. 

Regarding my other question on cost basis, I guess I have to refigure it. This is what I had for my 4 unit-

 bought the property 10 years ago for $232,000

 

add in escrow fees/cost to originally

buy the property AND subtract escrow

realtor fees and cost to sell which is  + $65,436

 

equals.................................................   $297,436

minus Depreciation for 10 years            -$65,791

 

sold the property for                              $835,000

 

so my total basis was ..........................$603,335  

 

I think you mean your total gain is $603,335 because you subtracted your basis from the sales price.  This would be your deferred gain that would be allocated between the properties that you acquired on a prorata basis using the fair market value (purchase value) of each property.  You would then add the closing costs to your cost basis. 

 

NOW I can subtract from that ($603,335) escrow fees on the 2 properties we exchanged into, right?

 

Thank you Mr Exeter