sale of Katrina rental property

[oceanlovin'ea]

Client sold his rental house in Mississippi in 2008. He took the casualty loss on the house in 2004. Loss was $73,000.
The houses that have been completely repaired are selling for $230,000 to $250,000 according to letter from real estate agent in area. His house was not completely repaired so it was put on the market for $115,000 and sold for $107,000.
Now what do I use as a basis? Do I go back to the basis that I was using for the rental? That doesn't seem right. How do I adjust for the loss he was allowed to take? He also has the expenses of $65,000 to repair the house that would be added to the basis.

On the 4684 the FMV before casualty was 220,000 and after it was 96,000 which is a difference of $124,000. But the basis was lower so the loss was the lower of basis and the $124,000.

This has me confused. Maybe clearer in the morning. But any help would be appreciated.

Linda

[oceanlovin'ea]

moving this up

I am just moving this up as I need to finish the return and I am still in a quandry.

Any help, PLEASE.

Linda

[WhiteOleander]

Client sold his rental house in Mississippi in 2008. He took the casualty loss on the house in 2004. Loss was $73,000.
The houses that have been completely repaired are selling for $230,000 to $250,000 according to letter from real estate agent in area. His house was not completely repaired so it was put on the market for $115,000 and sold for $107,000.
Now what do I use as a basis? Do I go back to the basis that I was using for the rental? That doesn't seem right. How do I adjust for the loss he was allowed to take? He also has the expenses of $65,000 to repair the house that would be added to the basis.

On the 4684 the FMV before casualty was 220,000 and after it was 96,000 which is a difference of $124,000. But the basis was lower so the loss was the lower of basis and the $124,000.

This has me confused. Maybe clearer in the morning. But any help would be appreciated.

Linda

Ok, I'll give my take. I would start at the basis of 2004. I am a little confused by the numbers posted. You said he took a loss of 73000 in '04. So, I would figure the basis from '04 less this allowed loss. If the loss taken was more than the basis, did the t/p show the difference as income? If he did, then that would be the basis from '04. If it lowered it to a positive amount, that would be the basis. If he lowered the basis to zero and had more left over, I would deduct that figure from the basis I am figuring for the 4684 this year. (although technically that is wrong)

Then I would add the 65000 he paid in '08 to the remaining basis from '04.

Then go from there to figure the lower of FMV or basis for the 4684.

[Earl]

Basis

Apparently the basis in 2004 was $73,000 which you say is the amount he was allowed to take as a loss when the loss was $120,000+.

If basis was $73,000 and he received a loss deduction of $73,000 then basis after loss was $0. Add to the $0 basis the cost of repairs of $65,000 and this will be the cost basis of property at sale.

Sale price of $107,000 less basis of $65,000 equal capital gain of $42,000.

[oceanlovin'ea]

2004 Form 4684

The cost was 85,000
Insurance reimbursement was 12000
FMV before casualty was 220,000
FMV after casualty was 96,000
Difference of 124,000
Smaller of cost or difference was 85,000 minus the reimbursement was 73,000

I guess that was my question: Did the loss he took in 2004 reduce his basis to 12,000 and then I would add the cost of renovations to come up with his new basis?

That would make the most sense. It does seem much clearer today than the other day.

Guess I was having one of those days where your brain doesn't seem to connect to anything you already know.

I do appreciate your help.

Linda