You finally unloaded that piece of property you were holding, and you need to know how to file taxes on a property sold this year. Never fear, your favorite tax advisor is here! Filing taxes on a property sold can be broken down very simply, and there is no need to allow it to overwhelm you.
Determine the type of property. If the property was personal property or was being held for investment, the gain will be a capital gain, and the way in which you file taxes on the sale is very straight-forward. However, if the property was your primary residence, rental property, or other business property, there are many special rules in how you will file taxes on it. There are a number of Publications that you should check out on the IRS website if any of those situations apply to you. The most helpful ones are 551 ”Basis of Assets”, 523 “Selling Your home”, 527 “Residential Rental Property”, and 544 ”Sales and Other Dispositions of Assets”.
- Know the basics. You will need to know certain specific things about the property that you sold in order to file taxes on the sale. Some of this information will be found in the sales documents for the property, and some will be found in the original purchase documents for the property. These items are (1) the date of sale, (2) the proceeds of the sale, (3) the date of the purchase, and (4) the basis of the property. In a simple case, basis is simply the purchase price of the property plus the cost of any improvements, plus any costs associated with the sale.
- Complete the proper forms. The IRS requires that a gain or loss on a property sold be calculated and shown on a Schedule D, which is then attached to your individual income tax return. If the asset was used for business, you will also need to complete a Form 4797. Those two forms are the main ones that are needed when you file taxes.
The Schedule D, in itself, is not a very complicated form. It looks much more frightening than it really is, and therefore tends to freak people out. But, if you follow the instructions, they walk you through the completion of the form, step-by-step. However, as always, if you are not confident in handling it yourself, you can always pay a professional to file taxes on it for you.