While it is not unusual for a tax pro to have clients with rental income, additional complexities arise once the client decides to sell a rental property. These clients can benefit from tax planning to help mitigate the tax impact of selling a rental property.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: What does DMSH stand for?
A: It’s an abbreviation for de minimis safe harbor depreciation, also known as the repair regs.
Q: What is an ALTA statement?
A: The American Land Title Association (ALTA) settlement statement is an itemized list of all the fees or charges that the buyer and seller will pay during the settlement portion of a real estate transaction. Everything from the sale price, loan amounts, school taxes and other pertinent information is contained in this document.
Q: How do you allocate a condo or a townhouse that doesn’t include land?
A: First, verify there isn’t any land tied to the condo or townhouse ownership. If there’s no land, allocate the full purchase price to the building.
Q: If the taxpayer decides not to purchase the rental property, how do you treat the inspection costs, travel expenses and forfeited fees they paid?
A: The treatment depends on the entity type. Assuming this is a noncorporate taxpayer, the taxpayer can take a loss for the failed start-up business costs.
To learn more about reporting the sale of a rental property, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.