The three items that will determine the gain or loss on the sale of rental property is the Adjusted Basis, Depreciation Taken to Date and the Selling Price.
The tax you pay after selling a rental property depends on your profit. The IRS taxes the profit in two ways. The first is a capital gains tax that is 0%, 15%, or 20%, depending on your taxable income and filing status. The second is a maximum depreciation recapture tax of 25%.
The adjusted basis of the property is the purchase price (or gift and Inherited FMV in your case) plus improvements less depreciation taken.
The Selling Price for tax purposes would be the Gross selling price less selling expenses such as commissions and other closing costs paid by the seller.
A simply examples follows:
$200,000 Net Selling Price
$100,000 Adjusted Basis (135,000 less 35,000 of depreciation)
$100,000 Gain
< 35,000> Depreciation recapture taxed at ordinary income tax rates
$ 65,000 Capital gain, taxed at capital gain tax rate of 0%, 15%, 20%
If you are using TurboTax, the program will calculate the ordinary and capital gain on the sale of the rental. You will need to follow the prompts in entering the sale information. The sale information would be entered in the rental section of the program.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
