You sold your rental property. You traded in business equipment. You finally offloaded that collectible car you’d been restoring for years. The transaction is complete—but your tax obligations are just beginning.

Based on IRS Publication 544 (“Sales and Other Dispositions of Assets”), here are five surprisingly common—and expensive—errors taxpayers make when reporting property dispositions, along with practical fixes.

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❌ Mistake #1: Forgetting That “Amount Realized” Includes More Than Cash

Most people calculate gain by subtracting their original cost from the sale price listed on the closing statement. But the IRS defines amount realized much more broadly:

Amount Realized = Cash received + Fair market value of property/services received + Liabilities the buyer assumes

The trap: When selling real estate, if the buyer takes over your existing mortgage, that debt relief counts as additional proceeds—even though you never touched the cash.

Example: You sell a rental property for $200,000 cash, but the buyer also assumes your $50,000 mortgage. Your amount realized is $250,000—not $200,000. If your adjusted basis was $180,000, your taxable gain is $70,000, not $20,000.

✅ Fix it: Always review settlement statements for debt assumptions, seller financing arrangements, or property/services received in trade.

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❌ Mistake #2: Using Original Purchase Price Instead of Adjusted Basis

Your basis isn’t frozen at purchase. It changes over time:

Increases Basis	Decreases Basis
Capital improvements (new roof, HVAC, room addition)	Depreciation claimed (or allowable)
Legal fees to defend title	Casualty loss deductions
Zoning costs, assessments	Insurance reimbursements for improvements

The trap: A business owner sells equipment with $40,000 original cost but fails to account for $15,000 in depreciation already claimed. They report a $10,000 loss ($40,000 basis − $50,000 sale price) when they actually have a $5,000 gain ($25,000 adjusted basis − $50,000 sale price).

✅ Fix it: Maintain a running “basis ledger” for major assets—especially business property and rental real estate.

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❌ Mistake #3: Missing Depreciation Recapture on “Break-Even” Sales

You sold that rental property for exactly what you paid years ago. No gain, right? Wrong.

Even if your sale price equals your original cost, you likely claimed years of depreciation deductions. The IRS requires you to “recapture” those deductions as ordinary income—even if your overall transaction shows a loss.

Example: You bought a rental for $300,000, claimed $80,000 in depreciation, and sold for $300,000. Your adjusted basis is $220,000, creating an $80,000 gain—all recaptured as ordinary income taxed up to 37% (plus 3.8% net investment income tax).

✅ Fix it: Run the numbers before listing property. That “break-even” sale may trigger a six-figure tax bill.

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❌ Mistake #4: Assuming Primary Residence Exclusion Applies Automatically

Yes, you can exclude up to $250,000 ($500,000 married filing jointly) of gain on your home sale. But three conditions must all be met:

1. ✅ You owned the home for at least 2 years
2. ✅ You lived in it as your primary residence for at least 2 of the last 5 years
3. ✅ You haven’t used this exclusion in the past 2 years

The trap: Converting a rental property to a primary residence doesn’t automatically reset the clock. Partial exclusions may apply, but unrecaptured depreciation remains fully taxable.

✅ Fix it: If you’ve rented out part of your home or converted investment property to personal use, consult a tax pro before selling.

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❌ Mistake #5: Not Reporting “No-Gain” Transactions at All

“I didn’t make money—why report it?” Because the IRS may have a different view—and they’ll come looking.

• Brokers issue Form 1099-B for securities sales regardless of gain/loss
• Title companies issue Form 1099-S for real estate sales over $250,000
• Crypto exchanges report digital asset sales on Form 1099-B

Failing to report these transactions—even with $0 gain—triggers IRS matching programs and potential penalties.

✅ Fix it: Report every disposition on Form 8949/Schedule D or Form 4797 as appropriate. Document why gain was zero (e.g., adjusted basis equaled sale price).

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Your Action Plan Before Year-End

1. Inventory major assets you’ve sold or plan to sell
2. Gather documentation: purchase records, improvement receipts, depreciation schedules
3. Run preliminary calculations using the gain/loss formula with adjusted basis
4. Flag recapture exposure—especially on depreciated business/rental property
5. Consult a tax advisor early if considering a like-kind exchange or navigating complex scenarios

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Property dispositions aren’t just about closing deals—they’re tax events with multi-year consequences. A few hours of careful calculation today can save thousands in penalties, interest, and unnecessary tax tomorrow.

Disclaimer: This article explains common pitfalls identified in IRS Publication 544 but does not constitute tax advice. Your situation may involve unique facts requiring professional guidance. Always consult a qualified tax advisor before finalizing disposition strategies.