Have a Tax Question? Ask a Tax Expert
Thank you for your answer.
Specifically, how is the percentage of the property divided between the primary residence and the rental? Does the length of time used as rental enter into the equation? If 35% of the usable square footage was used as rental for 11 out of the 49 years, what percentage would be assigned to rental for capital gains purposes?
In most situation - the property is divided based on square footage - these are two different units are treated as two separate properties.
If the rental part is 35% - you would allocate 35% of the selling price and of the basis - to rental part.
The length of time that the property was rented - would affect only the amount of depreciation.
She may not exclude from taxable income the capital gain realized from the selling her rental unit.
So the capital gain is taxed as such and also counts as taxable income?
I am not clear what do you mean "also' - there is NO two type of taxes.
The capital gain is added to other taxable income and the tax liability is determined based on the total income, filing status, deductions, etc.
The gain realized from the sale of rental property is taxable.
A part of the gain attributable to the depreciation recapture is taxed as a regular income - maximum rate 25%.
The rest of the gain is taxed as a long term capital gain - at reduced long term capital gain rate - not more than 15%.