This time Jeff and Matilda have their own daughter, Angela.
Angela becomes college age, so Jeff buys a rental house in Lansing MI so Angela can attend Michigan State. Angela pays a minimal amount of rent to cover insurance, property taxes, and maintenance. And as expected over Angela's four undergraduate years, a substantial amount of loss (including depreciation) accumulates, $20,000.
After four years of undergraduate study, Angela meets Ben, the young man of her dreams. Angela and Ben get married and move to New Hampshire (it is irrelevant where they move, but New Hampshire sounds romantic).
Jeff sells the rental property to an unrelated party for a substantial gain. Can he offset the gain with the $20,000 in accumulated losses. He certainly could if the tenant had not been related.
If an illustration would help, assume numbers as follows:
$150,000 purchased in 2018.
$ 16,000 in depreciation, which is part of the $20,000 in accumulated losses.
$185,000 selling price in 2023.
Gain, absent any other factors, is $51,000, with $35,000 in LTCG and $16,000 in s.1250 recapture.
If he can apply the disallowed losses from related party, his gain would be $31,000. I'm thinking $15,000 in LTCG and $16,000 in s.1250 recapture.
Can he do this? I'm thinking it would be fair, but application of tax law is not necessarily fair.
Angela becomes college age, so Jeff buys a rental house in Lansing MI so Angela can attend Michigan State. Angela pays a minimal amount of rent to cover insurance, property taxes, and maintenance. And as expected over Angela's four undergraduate years, a substantial amount of loss (including depreciation) accumulates, $20,000.
After four years of undergraduate study, Angela meets Ben, the young man of her dreams. Angela and Ben get married and move to New Hampshire (it is irrelevant where they move, but New Hampshire sounds romantic).
Jeff sells the rental property to an unrelated party for a substantial gain. Can he offset the gain with the $20,000 in accumulated losses. He certainly could if the tenant had not been related.
If an illustration would help, assume numbers as follows:
$150,000 purchased in 2018.
$ 16,000 in depreciation, which is part of the $20,000 in accumulated losses.
$185,000 selling price in 2023.
Gain, absent any other factors, is $51,000, with $35,000 in LTCG and $16,000 in s.1250 recapture.
If he can apply the disallowed losses from related party, his gain would be $31,000. I'm thinking $15,000 in LTCG and $16,000 in s.1250 recapture.
Can he do this? I'm thinking it would be fair, but application of tax law is not necessarily fair.
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