Divorced clients sell residence converted to rental

[KumarB]

Interesting Case!


Purchased property in TX..... 03/06
Both moved out........ ..........01/08
Legally divorced and both moved back to NY.... 02/08
From 2008 -2011 client said property was not rented..just sitting there..mtg was paid by help of parents.(something doesn't seem right)
2008-2011 parents claimed as dependent while working part time and attending school full time.
From 2012 - 2014 rented through management company. 1099 reported to IRS.
Sold property .....................10/14

I have to report the sale 50/50. Will this sale be reported as investment property or sale of residence. Clients did not live in house for 2 years prior to selling.
Someone please advise as to which route to take?

[ATSMAN]

Not a sale of personal residence in my opinion based on the dates you provided. So it is a sale of a rental properry. You will need to adjust the basis as of the date of conversion. The question is when it was vacant were they trying to rent it and put it in the market for rental or have it boarded and not available for rental. If it was boarded up then the rental period starts when they made it available for rent and you do the calcs. accordingly.

You have not provided what they paid for the property and what they sold for??

[kathyc2]

Interesting Case!


Purchased property in TX..... 03/06
Both moved out........ ..........01/08
Legally divorced and both moved back to NY.... 02/08
From 2008 -2011 client said property was not rented..just sitting there..mtg was paid by help of parents.(something doesn't seem right)
2008-2011 parents claimed as dependent while working part time and attending school full time.
From 2012 - 2014 rented through management company. 1099 reported to IRS.
Sold property .....................10/14

I have to report the sale 50/50. Will this sale be reported as investment property or sale of residence. Clients did not live in house for 2 years prior to selling.
Someone please advise as to which route to take?

So, 6 years after the divorce property is still jointly owned? Was 1/2 of rent reported on each of their returns for 2012-14? I would say it's definitely rental property and subject to recapture/LTCG.