Sale of 2nd Home

[anu31402]

A client bought a residential property (2nd home) in April of 2006. It was depreciated (Straight line over 27.5yrs) and there was unused passive activity loss of about $28300. He sold the property in November of 2007.

My questions are:

(1) Do I use Form 4797 or Sch D?
(2) Is this a Section 1250 property?
(3) How and where do I make adjustment for the unused Passive Activity Loss? To increase property basis? or No Adjustment?

Your advice is greatly appreciated.

Kay
New York

[gkaiseril]

If Rental

If a 100% rental, since client took depreciation, you need to use 4797 to calculate gain on land (sec 1230 non-depreciable) and building and contents (sec 1250 depreciable), recover as ordinary income the depreciation allowed or allowable, and report amounts from 4797 to schedule D.

If a second home for 100% personal use Schedule to report sale. If a loss disregard loss and only recognize gain.

If used for both, allocate sale price to based on business use percentage and compute the gain or loss on the business and personal portions as above.

[les grans]

If there is a gain on the sale, the depreciation taken/allowable should be reported as "unrecaptured section 1250 gain" - this is not ordinary income. Also, the suspended passive activity loss should end up as a rental loss on Schedule E