Selling a rental home

Selling a rental home has some interesting income tax implications.  

The following question was asked and answered on NJMoneyHelp.com:

Q. We may sell a condominium that we have been renting out. We would buy something else in New Jersey. What are the tax implications on the sale of the home? We have not lived there for the past three years.
— Landlord

A. There are several tax implications to consider.

This is considered a rental property, so you will pay tax on the net gain, including potential depreciation recapture, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

He said depreciation is the systematic expensing of the cost or the building and improvements, and a percentage of that cost is taken as an expense each year.

“Recapture may occur upon sale depending on the method used for depreciation,” Karu said. “If it happens, there is additional income recorded at sale.”

But, he said, if you’ve had non-deductible carry-forward losses, all will be deductible in the year of sale.

“Carry-forward losses occur when the loss incurred in any calendar year is not deductible due to income or other limitations,” he said. “If that happens, the losses may be deductible in subsequent years.”

The gain is calculated by taking the gross selling price and deducting the cost basis plus any costs of the sale including, including any expenses you have fixing up the condo, he said.

Email your questions to Ask@NJMoneyHelp.com.

This story was originally published on March 10, 2020.

Remember to always seek advice from a personal professional tax and legal advisor who understands your unique individual circumstances.

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