Turbotax or tax guy?

[vintner Super Moderator Find all posts View Profile Close vintner]

I had a tax guy do my taxes until 2011; he got sick and started thinning down his clients and has now sold the firm. In 2012, I tried to have H&R blockheads do it, but they could not figure out how to do my options trades. I did it on TurboTax, all stock and options trades imported fine. Same for 2013.

Now, 2014, I sold the rental property (contract for deed) and apparently from the new tax guy I saw last night, all hell will break loose, I will probably have to sell my kids (problem since I don't have any) and will need to sell blood. How can it be that I will have to pay 50% of the profit of the sale in taxes? Apparently I didn't have all my depreciations in 2013, so the numbers he wants to use for 2014 are not right.

I am going to let him muddle through my taxes and at the same time, I am going to enter whatever I can in TurboTax. If TurboTax takes the info and can account for the sale of the rental property, then maybe things will work out and my stomach can un-knot.

Has anyone sold rental property that can offer tips or thoughts on completing TurboTax? Does TurboTax work for this or do I stick with this high voiced guy and his tax program?

[bigfrank Administrator Find all posts View Profile Close bigfrank]

If you have taken depreciation on the rental property and bought the property cheap, you are so screwed now. Let me tell you how bad you're going to get screwed. You can sew up your butt hole tight and yet the IRS will find their way in.

The only way to get around this and I am sure you know was to make a like to like buy. You have 1 year to do it so you might be in time to buy another rental.

[easyrider Senior Member Find all posts View Profile Close easyrider]

Yup, what Frank said.

There are more than one capital gains tax to consider. There is the difference between the buying price and the selling price minus expenses and then plus the depreciation taxed at 15 to 20%. Then there is the land value taxed at 25%. I would have an accountant do this as it is kind of easy to screw up.

If you haven't lived in the house for a period of time, I can't remember how long, you don't get to do a 1031 exchange is what I think. Im not certain.

My plan is to sell off my rentals on private contracts in about 10 - 15 years to spread out the pain.

[chriskre Super Moderator Find all posts View Profile Close chriskre]

Yes its a big sticker shock to get out of the rental game called recapture on the gain.
Frank is talking about doing a 1031 exchange.
I believe since you have possession of the money already you'd have to do a special 1031 exchange now which undoes what you did when you sold.
Not sure if it's even possible at this point but worth looking into if you were thinking of buying something anyway.
There are several companies who specialize in this sort of thing.

This is the company that my clients have used in the past.
http://www.starker.com
I've never used Turbotax cause I feel more comfortable with my accountant.
She always seems to find a legal way to soften the tax blow for me and gives me tax strategies for future years.
Worth the $1500 I pay her IMO.

BTW, I now own my rental properties in my self directed IRA.
You don't pay capital gains thru it, but then you don't get the depreciation benefits either, but it makes life simpler
if I need money, I just pay the 20% tax or not, but that's a whole different strategy best explored in the real estate
investment clubs who hold that secret.

[rapmarks Moderator Find all posts View Profile Close rapmarks]

here is a question, if you buy a property, rent it out for three or four years, then live in it for say ten or twenty years, when you sell it do you have to go through this?

I don't own rental but I persuaded my younger sister to buy near me and rent it out til she retires.
The IRS is doing to me just what Frank described, and the worst part is not only paying them all this additional money, but having to pay the same amount for 2015. We won't be doing anything extravagant this year, instead suppporting the IRS.

[bigfrank Administrator Find all posts View Profile Close bigfrank]

here is a question, if you buy a property, rent it out for three or four years, then live in it for say ten or twenty years, when you sell it do you have to go through this?

I don't own rental but I persuaded my younger sister to buy near me and rent it out til she retires.
The IRS is doing to me just what Frank described, and the worst part is not only paying them all this additional money, but having to pay the same amount for 2015. We won't be doing anything extravagant this year, instead suppporting the IRS.

You need to live there 2 years. Next if it is, let's say a 2 family and you never wrote anything off, then it is not so bad. You still have to pay Capital gains on the difference from the purchase to the sell price.

[easyrider Senior Member Find all posts View Profile Close easyrider]

here is a question, if you buy a property, rent it out for three or four years, then live in it for say ten or twenty years, when you sell it do you have to go through this?

I don't own rental but I persuaded my younger sister to buy near me and rent it out til she retires.
The IRS is doing to me just what Frank described, and the worst part is not only paying them all this additional money, but having to pay the same amount for 2015. We won't be doing anything extravagant this year, instead suppporting the IRS.

If your selling your house you are allowed an exemption of like $250,000 filing single or $500,000 filing jointly. This is what many people do. They buy, then live in, then sell and repeat.

Another strategy is to actually live in the house for 6 months during 2 years within a 5 year span to claim a primary residency. This can often be accomplished between renters and become a primary residence for 6 months one of the years and a primary residence before you actually sell within a 5 year span.

[bigfrank Administrator Find all posts View Profile Close bigfrank]

Keep in mind that every state is slightly different.

[rapmarks Moderator Find all posts View Profile Close rapmarks]

I know about the tax advantages when selling your house, I just wondered how far back the IRS looks to determine if it was rental property. She is not going to do 6 months in and rent 6 months or any kind of avoidance.

[easyrider Senior Member Find all posts View Profile Close easyrider]

I don't think the rental part would matter if the place has been her primary residence. It sounds like she is way over the minimum time.

[pittle Senior Member Find all posts View Profile Close pittle]

When we had a condo that we rented out for a few years an accountant friend told me not to take depreciation if we intended to sell it in a few years or wanted to live there ourselves. We followed her advice and it sounds like that was good for us. When we did sell it, we had no problems and used TurboTax.

I would probably try TurboTax. We have used them for years and had good luck.

[vintner Super Moderator Find all posts View Profile Close vintner]

I am firing the first tax guy, I don't think he knew what was going on. First he told me I may be paying about $85K in taxes, then it was $58,000 in taxes. That would be about 50% of the sale price or 50% of the profit. That is too high. These were all before he started doing anything. He never did get all the expenses, and really never seemed to understand what was already at his fingers (same tax place from 2004-2011 and he didn't even pull up records until 25 minutes into the discussion), so I just don't think he is on top of everything.

Talked to a second guy last night (meeting with him tonight) that seems to a much better understanding of depreciation, costs involved, stock trading, etc. I have pulled my tax records from 2001 through present, so he will be well supplied with my history. Hopefully this will be a much less painful meeting (even the other guys voice was annoying).

Next year I should be able to go back to TurboTax. Life should be easier, tax wise anyway.

[easyrider Senior Member Find all posts View Profile Close easyrider]

So Don, How did this scenario turn out ? Did you file an extension ?

[vintner Super Moderator Find all posts View Profile Close vintner]

Where is the 'biting nails' emoticon?

Tax guy has my life in paper. I left him everything I could think of that may be important. He has only asked about on of the the DW's 1099 forms. He is getting it finished up this morning, ready for us to sign at noon. I still have no idea on the final bill. Still very glad I am having him do it rather than TurboTax.

[vintner Super Moderator Find all posts View Profile Close vintner]

Whoohoo!
Taxes are done. Paying much less than I had expected. Much less stress having 'the guy' do the taxes this year.