Quote:
Originally Posted by waddy41
why do you have to establish fmv?
isn't it proceeds of disposition - cost = gain ?
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Consider this:
Bought in 2005: $200K
FMV in 2010: $300K
Sold in 2015: $300K
Owned 2005-2010
Rented 2010-2015
Based on the formula from taxtips, he would owe capital gains on:
($300K - $200K) * (5 / 10 ) == $50K
When he should owe $0 capital gains cause the property did not increase in value while it was a rental, and the $100K gain should be protected as his tax free primary residence.
If instead he got an appraisal done he could claim the FMV of the property was $300K when it changed use from primary to rental. I've read this is usually good enough, yet if you were to be audited it would be best to establish an amr's length transaction to sell the house then rebuy at $300K in 2010, thus absolutely establishing the unit as only a rental.