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January 16, 2013

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Shirley Callahan, EA

In update class today, instructor questioned the sale of home when 4797 asks for "depreciation allowed or allowable." What happens then?

Anthony

The revenue procedure states that no depreciation is allowable if you make the election. So that's another factor to consider.

As for still being able to take mortgage interest, real estate taxes, and casualty losses, I don't think the $5 a square foot does include these things. You'd have to get closer to the $8-10 a square foot range if you wanted to include that.

The strange thing is that the mortgage interest and real estate taxes are put on the Schedule A, not the Schedule C. So that's more factors to make sure to consider - the effect of the SE tax, the effect of maybe having a higher AGI but a lower taxable income, etc.

Looks like this is not only something that we're going to have to run both ways, but also something we should be discussing with the client. How much of a benefit is it to not have the unrecaptured section 1250 gains when you sell the house? Do you want to treat the SE tax as a loss, or do you want to factor in the increased social security payments you'll be receiving in the future?

As for your question about the carry forward, the Revenue Procedure states "Any amount in excess of this gross income limitation is disallowed and may not be carried over and claimed as a deduction in any other taxable year."

Trish

Anthony thanks for the clarification on depreciation and carry forward - Trish

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