Hello @NaomiRH !
Congrats on fulfilling that lifelong dream!
There are a couple of tax-related items to discuss:
First, you will need to report the proceeds of the sale of property. There will be two types of tax on that property. You will pay tax on what is called "depreciation recapture," in which the amount which has been depreciated while the property was being rented is included as ordinary income, taxed at your normal income tax rate. You may also pay capital gains, which are calculated by subtracting the "basis" (fair market value of home on date of death for inherited property, plus any subsequent capital improvements and closing costs) from the total proceeds (amount received in the sale, not including selling costs such as agent commission, title transfer fees, etc.). For your purposes, you will apply 50% to each of these numbers.
Second, since you are closing on a second home, if you are paying mortgage interest, you will be able to include that interest and any property tax as an itemized deduction on your income tax return.
I hope that helps answer your question! Please respond here if you need further clarification.
All best,
Adam, EA
TurboTax Live Expert
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