I have a couple that sold both a rental home and their personal residence this year (I'm claiming the sale of home exclusion on the personal home). The rental had originally been purchased in 2005 with a USDA Rural Housing Subsidy Repayment Agreement and converted to rental use in 2017. The sale of the rental was finalized in 2020. The closing documents shows a $21,838 subsidy recapture (Subsidy Recapture to USDA-RD/CSC). I'm trying to determine the clients basis in this rental property for Form 4797 and am unsure what to do. I have not previously prepared their return and the preparer at my office did not factor in this subsidy when the initial basis calculation was done. So my question is, do I use the original basis or do I make an adjustment to the rentals basis because of this subsidy recapture. The closing documents show that the subsidy was repaid in full when they sold the home, also the Subsidy Repayment Agreement that the client found in the original closing documents from 2005 does not specify that any adjustment to basis needs to be made if the house was converted to a rental. It specifies that "repayment of recapture can be deferred, interest free, until the property is subsequently sold or vacated". So this subsidy recapture should have been done as soon as they converted this house to rental use, but obviously that didn't happen... Not sure is an adjustment to basis needs to be made.
6-Aug-2021 12:55pm
