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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15747
Experience:  15years with H & R Block. Divisional leader, Instructor
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My husband and I just sold our 2 family home 2 weeks ago.

Customer Question

My husband and I just sold our 2 family home 2 weeks ago. For many years we rented one side of our two family home. We've just sold it for $650,000. We originally paid $180,000. We have refinanced several times so our current mortgage which we will pay off is $340,000. We've been told by several people that we will need to pay capital gain taxes on the money we make from our sale. I know there is an exception for couples up to $500,000 on a single family home, but ours is a two family and I'm told the capital gain taxes are much different for 2 family homes. can you tell me if we will need to pay capital gain taxes during the next tax season? and if so about how much?
JA: The Accountant will know how to help. Is there anything else important you think the Accountant should know?
Customer: I think I gave all the info the accountant should need.
Submitted: 5 months ago.
Category: Tax
Expert:  Robin D. replied 5 months ago.

Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a few moments.

Customer: replied 5 months ago.
Ok
Expert:  Robin D. replied 5 months ago.

You will report the sale as 2 sales, half rental and half main home, like when you reported the rental each year. You will pay tax on the rental portion of the sale above the cost. You have to calculate the cost for the rental as original purchase (for the half) plus improvements less the depreciation claimed. The half that is your main home you can use the IRC 121 exclusion for main home. I cannot tell you how much tax you will pay because the depreciation and the improvements are included in the calculation.

Customer: replied 5 months ago.
We have about $120,000 in depreciation and expenses for work we ve done on the rental. When u say " calculate the cost for the rental as original purchase (for the half) do u mean the original purchase we paid for the home (180,000) or the price we sold the house for (650,000)?
Expert:  Robin D. replied 5 months ago.

Your cost the is the original purchase price. You should be able to see what you claimed as that for the rental portion on your depreciation schedule. You use the original cost plus improvements less the depreciation you claimed. Start with the $180.000. Sale price is the $650,000 split between the two uses (main home and rental) the difference is the gain.

Expert:  Robin D. replied 5 months ago.

You may want to use a tax professional this year for the completion of your return. I hope this has been helpful. A positive 5 star rating is appreciated so I am credited for responding.

Customer: replied 5 months ago.
I'm sorry, I'm still confused. can you do a quick breakdown calculation with the amounts I've given you above and let me know what our gain would be that we need to pay the capital gains taxes on?
Expert:  Robin D. replied 5 months ago.

Your original cost would be for the rental, $180k divided by 2 = $90k less depreciation. You said you have claimed $120k in depreciation that is not possible on the half you rented. So what did you say was the basis for the rental on the Schedule E?

Customer: replied 5 months ago.
Actually, I beleive that depreciation amount ($120,000) is for the total home, not just the rental.
Expert:  Robin D. replied 5 months ago.

You could not depreciate the portion that was not used for rental. You would have only used the % of the property that was rental.