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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I am selling a rental property that I purchased 6 years ago

Customer Question

I am selling a rental property that I purchased 6 years ago with a personal loan. I still owe 50,000 on the personal (unrecorded) loan that I will pay back the day after the sale. How do I report this to the irs and can I avoid paying capital gains tax on the amount I am paying back?
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Hi. My name's Lane. I can help.


For tax purposes, Capital Gain = Sales price - ( purchase price + improvements)


Essentially, what you get out of it what OVER you have in it (what you have IN it it termed basis)


The loan is irrelevant to gain. The loan is just how you FINANCED the purchase, (how you came up with the money to purchase)


The there's one other piece for a rental ... You have to lower the basis by the amount of depreciation you took (or should have) becasue IRS wants to recapture that as part of the gain

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