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Are you familiar with Capital Gain taxes on rental property?

JA: The Accountant will know...
Are you familiar with Capital Gain taxes on rental property?
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I bought a 2 unit rental property 33 years ago for 50K and lived in half of it for 25 years. Eight years ago I moved out and rented both units. I would like to sell it now for 140K. How do I figure my cost basis and what my gain would be?
JA: Is there anything else important you think the Accountant should know?
Customer: How does what I depreciated over the years affect the basis?
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Answered in 7 minutes by:
10/27/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,331
Experience: Taxes, Immigration, Labor Relations
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You need to calculate the basis separately for each unit.

-- Unit one that you used as your personal residence

- original basis is your purchase price $50K / 2 = $25k

- minus depreciation allowed or allowable for 8 years

- plus improvement expenses

That will be your adjusted basis for that unit.

-- Unit #2 that was rented should be fully depreciated

- because residential rental is depreciated over 27.5 years

- so unless you have unrecovered improvement expenses which you capitalized - your adjusted basis is zero

the gain = $140K(selling price) MINUS (adjusted basis from above)

Let me know if you need any help with reporting.

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Customer reply replied 1 month ago
would 15% of the 140K be added to my taxes?

Not exactly...

not the full selling price but only the GAIN is added to your other taxable income.

while you are correct - because the property was owned more than a year - that gain is taxed at reduced long term capital gain rate - your tax liability is calculated based on your total income - and there is a special worksheet to use when the tax liability is calculated.

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Customer reply replied 1 month ago
Thanks

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.

I am here to help you with all Social Security / Tax related issues.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,331
Experience: Taxes, Immigration, Labor Relations
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