Video instructions and help with filling out and completing Form 4797 Deferred

Instructions and Help about Form 4797 Deferred

The most common ones you might think about okay well I'm living in one unit and I am renting out the other unit all right so if you're doing a sale for somebody selling a duplex and they're living in one of the units they can use code 121 for their portion and code 1031 for the difference for the difference now what's really interesting is and I'm going to get to this in a second which really it's been really interesting and do this without anything falling or high success okay is that see that revenue procedure 2005 - 14 all right and that revenue procedure what happened was that the IRS said if a taxpayer has a property that used to be the principal residence and they were out of the property no more than three years they could qualify for 121 and 1031 treatment I had a transaction okay they were selling for a million five up in Palos Verdes okay I'm going to say there's a zero basis of the property this property was a rental for two and a half years so they were running out of time for that three year out of the property the owners of this property said I don't want to I'm not sure if I really want to sell this property because I only get how much five hundred thousand right so that means and let's just pretend that their basis is zero so they'll say they're going to pay tax on a million dollars there I'm not sure if I want to do that I said well you know you can do both this is what do you mean I says well you can take five hundred thousand dollars under code 121 tax-free and then you take the million and you 1031 that into another property so you buy a property for a million dollars or more so that way that opened up that listing for that agent because what ended up happening in that situation he says okay I can live with taking five hundred thousand dollars tax-free and then put the rest into another property that is something that if you understand how this works when you're working with clients that it might have been their primary residence they're out of it they can do both they can do both okay and it's not uncommon it's not uncommon so knowing this is really important for you as ages when you start to work with high you know high liability properties or high income properties okay remember I was telling you about the exchange train and people were exchanging and moving into it and selling alright in 2004 they changed the code what the tax code 121 in it read like this if you acquire a property that you exchanged in as a part of an exchange and you later convert that property to your primary residence before you can sell it to and get the 121 the 500 or 250,000 tax-free you not only have to live in it for two years but you have to own it for five years so those people that were renting it for a year moving into it and doing that it put the brakes on it on that one but you have to own it for five years you have to own it for five years now they never stopped tinkering with the tax code alright so another thing that just came into effect in 2009 it says if as an investor I move into one of my investment properties okay and say it wasn't even a part of an exchange I'm just moving into my investment property because that's how people can sell an investment property and not have to do a 1031 to make it their primary residence going forward from 2009 going forward if it was a rental for three years I live in it for two okay so I've met my two-year requirement and say a $500,000 worth of gain on the property you just keep the math real simple I don't get the full $500,000 anymore I get a proportionate share I only spent two fifths in that so I only get $200,000 see what they just did okay because the last use of the property was the principle residence does everybody follow me on that when it used to be an investment and you converted it to your primary residence from 2009 going forward you're going to get a pro-rated share of the 1021 tax-free treatment yes yeah because we're talking 2009 going forward right okay going forward so nothing not going backwards but going forward and we're in 2011 right now so you know people yet what I mean when I say we the question is when I meet when I asking when I say owners it mean free and clear azure their debt associated with it it means I'm on Title whether I have Oh somebody or don't know somebody I'm the owner of that property okay me and my bank might be partners okay all right but the reality is you know I'm on title to the property mm-hmm okay for five years then your yeah then you're fine should be fine on that one but it's when you have the it's the let the years you have to be careful of if I it was an investment for three and I lived in it for two which clearly makes me meet the code for 121 I just don't get the full five hundred thousand dollars now here's here's here's the genius of the people that write these laws okay if I move out of it for a year I get the full five hundred thousand now you go explain the logic to me on that one I don't get it all right so it's the last use that's going to trigger that so if for example I'm dealing