Do I have to pay capital gains tax if I made no profit?

February 26, 2014 1:19 PM

Taxfilter: I sold a condo in April. I sold it for $5,000 less than I bought it for, but I walked away with some money because I had owned it for 10 years and paid down the principal. I had been renting it out for 4 years before I sold it because I moved to a city nearby. I also put about 10K into renovations over the past few years. Do I have to pay any capital gains taxes? Is it worth it to try to get any kind of credit for the loss I took when I sold it for less than I bought it for?
posted by Clustercuss to Work & Money (8 answers total)

In order to realize a taxable capital gain, you'd have to have an actual gain, so you would not have a taxable event. If the home was your primary residence, you can not claim a credit for the loss. If it was an investment property, you should be seeking better advice than posting on metafilter.
posted by Lame_username at 1:29 PM on February 26, 2014 [1 favorite]

Best answer: No.

Also if you've been claiming this as rental property, you can deduct the $5,000 as a loss.

Talk to an accountant. You can easily parlay this sort of thing to a very nice refund.
posted by Ruthless Bunny at 1:30 PM on February 26, 2014

If you were claiming the rent as income then you should be able to claim expenses, and/or depreciation. But you should have been doing that the past four years.
posted by Gungho at 1:31 PM on February 26, 2014

Clustercuss: "I sold it for $5,000 less than I bought it for, but I walked away with some money because I had owned it for 10 years and paid down the principal."

You walked away with cash because you repaid part of a loan. That's not profit- your repayment schedule over that period was well more than whatever principal you recovered.
posted by mkultra at 1:41 PM on February 26, 2014 [4 favorites]

Best answer: If you had a rental, you have a tax professional handling your taxes, right? Because that Form 4562 (which you've been doing for the past 4 years, right? Because it's required for rental properties) is a total bitch, and makes this capital gains question look like child's play. Ask your tax professional about this.

If you do NOT have a tax professional, and if you haven't been claiming depreciation and amortization and all of your expenses as well as rental income on this property for the past 4 years, you really, REALLY, need to hire a tax professional do your taxes this year AND take a look at your past 4 years' returns. (You might be pleasantly surprised; a good tax person can pay for themselves many times over by getting you all the refunds you legally deserve.)
posted by rabbitrabbit at 2:11 PM on February 26, 2014

If it was your personal residence, basically, you don't have to worry about the depreciation, but you don't get the loss. If it's a rental, the expenses should have been capitalized or deducted as they occurred, and depreciation recorded annually, and if that hasn't been attended to, make that your first priority. As a general rule, never try to do tax returns for rentals yourself, they are very easy to mess up and not that time consuming for a CPA.

Real estate is an area where it's best to err on the side of caution, because the large values involved can lead to large amounts of penalties and interest if you report things incorrectly.

The up side is that a lot of rental properties actually record a loss on the books from year to year, because of that depreciation thing, that has no impact on your actual cash flow but can decrease your amount of tax owed. No guarantee, but for a lot of people, recording them properly can save them as much money as they're paying in accounting fees.
posted by Sequence at 2:46 PM on February 26, 2014 [2 favorites]

Best answer: And actually, to re-emphasize: If you do not have an accounting background, don't try to calculate your own depreciation by hand. I've seen 30-year CPAs screw that up when doing it by hand. A good CPA will have software that handles most of the heavy lifting.
posted by Sequence at 2:47 PM on February 26, 2014

Response by poster: Thanks everyone. Anyone know a good CPA in Denver?
posted by Clustercuss at 2:54 PM on February 26, 2014 [2 favorites]