Tax question involving a sale of a home.?

My wife and myself bought a home 24 years ago. We only lived in it for 4 years. We bougt another one to live in and had that one as a rental. We paid 25,0000 for it and sold it for 18,000. The home was completly paid for as you can see we took a big loss. we sold the home due to or divorce. All money was divided. I was told that all the money had to be claimed on my federal incolm tax. Will this be considered incolm even though we took a loss? How much of a % ? A nother note the rental propery was empty for 5 years.

The above answers are correct, so allow me to expand on the depreciation issue.

As mentioned above, depreciation allowed or allowable must be included in the gain/loss computation. If you never took depreciation expense, you must still compute the basis as if you had. Up until a few years ago that would have produced a double whammy, ie: you didn't get the depreciation deduction over the years but had to pay tax on the sale as if you did.

If you never claimed depreciation expense, you must still compute it when figuring your gain/loss. However, you can now complete Form 3119 and claim the depreciation you missed in past years. That will take alot of the sting out of the tax bill.

Form 3119 can be very intimidating, but its well worth the extra work. Again, it is only used if you never took depreciation during the years it was a rental.

You have 2 issues here, first is the loss on the property, 2nd is you have to capture all the depreciation that you took all those years.

You may well have a gain after the deprecation is recaptured, you can use the $7000 loss to offset it.

This next part may not be correct because i haven't looked it up, but if the 1099B comes in your name then you may try to use your ex wife's part as an expense, caution this may not hold up in an audit.

You should consult an EA or CPA that specializes in property sales.

While it appears that you took a loss on the sale, it's HIGHLY likely that you have a taxable gain on the sale because you rented it out.

When you sell a rental property, your basis is the net price you paid for it, plus the cost of any improvements (but not repairs) LESS any depreciation amounts that were allowed OR ALLOWABLE while the property was rented out. That "OR ALLOWABLE" qualifier is significant since you MUST account for the depreciation whether you took it or not while you rented it out.

Once you have arrived at your adjusted basis, you subtract that from the net proceeds from the sale and any excess is a taxable gain even though the sales price may have been less than what you originally paid.

And not to kick you while you're down reeling from that one, but that depreciation recapture is taxed at a higher rate than most long-term capital gains are. The maximum rate on it is 25%, not the normal 15% for long term capital gains.

Assuming that you were both on the deed, you can split the gain and therefore tax burden between you unless your divorce decree says otherwise.

If you sold a rental home at a loss, you can claim the loss as a long-term capital loss, because it was income property. However, you do not provide all relevant information. For example, if during the rental period you depreciated the home in calculating your net rental income, the cost basis of the home was reduced by the depreciation. In that case, the purchase price is not relevant. For example, if you paid $25,000 for the home, depreciated it down to $5,000, then sold it for $18,000, you have a $13,000 gain, on which you will be taxed. If the house was fully depreciated, the entire $18,000 is a gain.

Distributing the sale proceeds between yourselves has no tax consequence. The distribution is not income, so there is no tax on it.

If you had rented the house and depreciated it, your basis could be very small or nothing, so you could owe tax on the sales price or most of it since there wouldn't be a loss once you figured in the depreciation that you got tax benefit for over the years. You'll show the entire sales price as income, but if you have anything left for a basis, you'll show that also and won't be taxed on that part of the sale proceeds.