Hello Peeka,

When you receive property as a gift, you retain the same basis in the property as the donor's basis.

Your basis in this property would be whatever your father in law originally paid for the property, plus the cost of any improvements he made while he owned it, plus the cost of any improvements you made once you took over ownership.

Your gain is then figured by taking your selling price less that basis. Any gain you have there is taxed as a long term capital gain which currently is capped at 15%.

In addition, you must recapture any depreciation which was claimed on the property. The depreciation which you and/or your father in law claimed on this property is taxed at a special rate of 25%.

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Thank you Peeka.