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I sold a rental home under a contract where I am carrying…

I sold a rental...

I sold a rental home under a contract where I am carrying the mortgage for several years. The capital gains is about $117K. Do I pay taxes on that now or as I am paid the mortgage?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I bought the home in 1977 for about $55K. I started renting it in 1981, so I have depreciated it all. I sold the home in March of 2017 for $203K. I received an initial $10K down payment, so after expense I received a little over $5K. I have been receiving monthly payment of $913.00 since April.

Accountant's Assistant: Is there anything else the Accountant should be aware of?

The home was rental from Jan through March, so I received rental income during those months. I have turbo tax and have input all the number as instructed, but it appears that I am being taxed on about $145K for capital gains then plus my social security and retirement, so my tax liability is showing as over $30,000.

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Answered in 8 minutes by:
3/16/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,714
Experience: Taxes, Immigration, Labor Relations
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First - I suggest to verify if you correctly determined your capital gain.

If the property was fully depreciated - we need to verify if you adjusted basis for that depreciation you already deducted?

.

Another issue - as you sold on installment obligations - you have a choice - either to recognize full gain in the year of sale

OR

to use installment reporting method and spread recognition of the gain over following years and only recognize a part of the gain in the year of sale.

Please verify which approach is better suited your financial situation?

Lev
Lev, Tax Advisor
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Customer reply replied 1 month ago
The installment obligations is best for me. That is the selection I made on Turbo Tax. That is why I was so surprised at the tax obligation shown. From Form 6252, the sale price is $203K. The cost of the property sold was $52,500. Depreciation allowed in prior years was 52,274. The adjusted basis is $226. Commissions of sale was $4504.00. So the Income recapture was $52,274. Leaving a gross profit of $145,996. Installment amount received was $3,043. Leaving a balance o $141,039 to be paid over the next few years.
Customer reply replied 1 month ago
Cancel the phone call. I have an appointment. Send me the answer. Thanks.
Phone call session started

We may discuss later if needed - or I will cancel your request. Do not worry.

The cost of the property sold was $52,500 - is that your original purchase price?
The adjusted basis is $226 - so almost fully depreciated - correct?
Waht about land which is not depreciable? Do you track the land separately?

Commissions of sale was $4504 - add that to your basis
.

The sale price is $203K MINUS 4730 (adjusted basis ) - I am getting different gain that you posted as gross profit of $145,996 ???

That we need to verify.

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Let me know if you still need any additional help with reporting.

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Customer reply replied 1 month ago
I am finished with my questions. Thanks

Glad to be helpful.

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