Im selling a rental property i have now , i just got approve from the trustee and the bank to short sale i got the property back in 1997 for 142,000.00 i took out a Home Equity Loan back in 2005 to upgrade the house and now im going to short sale for 224,000.00 do i have to pay capital gains on the differents?
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You need to address these issues with your tax preparer. -
As was said, this is a question for a CPA or tax return prepare. The BK has no affect on potential CAP gains.
The issue will be the calculation of your "adjusted basis"
So, you bought the house in 1997....have your been "depreciating" on your prior tax returns? But, you also get to add back the improvements. If you have been depreciating, it is very likely you will have Cap gains regardless of the "short sale."
So, pure hypothetical (meaning, the numbers are not based on actual MACRS recovery periods, it is merely to illustrate the issue you face). You buy house for $142,000 in 1997 and immediately place it into service as a rental. You depreciate $7,000 per year. In 2012, you will have depreciated $105,000. making your adjusted basis $37,000. However, in 2008, you took out a HELOC and did $60K worth of improvement, that will add back $60K to your adjusted basis, making it 97,000.
You are selling the house today for $244,000, you would be totally screwed, you would have a potential CAP gain of 147,000 not withstanding the short sale.
But again, get a CPA, rental properties are big tax headache.
You will want to read this, (fair warning, very mind numbing)
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