When a rental is sold, there are usually two types of income generated
Depreciation Recapture
Capital Gain
When you started the rental, you should have entered the land and the building
Land does not depreciate
Buildings (improvements) do, and rental buildings depreciate over 27.5 years.
Whenever you made "improvements" such as a new roof, or added appliances, those assets SHOULD HAVE been entered, and they would depreciate at whatever their particular depreciation life is.
When you sell, you first adjust the basis for the depreciable assets.
If the land started at 29,700, the basis of the land will stay at 29,700.
If the building stated with a basis of 3,300, and it was depreciated 1,500, the adjusted basis is 1,800
If there were other assets added, they would also be adjusted by the amount of depreciation taken (or should have been taken)
Yes, 90% land and 10% building was the proportion when you bought, but was it when you sold?
Lets say YES, ok so you sold for 220,000.
198,000 for the land and 22,000 for the building.
That gives you a capital gain for the land of 168,300
Depreciation recapture of 1,500 and Capital Gain of 18,700 on the building
1,500 (depreciation recapture) is ordinary Income
187,000 Capital Gain
Lets say we allocate it 50% between land and building
110,000 for the land
110,000 for the building
That gives a capital gain on the land of 80,300
Depreciation Recapture of 1,500 and capital gain of 106,700
1,500 (depreciation recapture) is ordinary income
187,000 capital gain
The result is the same.
Depreciation is recorded on Form 4562 which should have been part of your tax return each year you filed with the rental.
That form will tell you the prior years' depreciation.
Be sure to enter the expenses and income and time it was a rental in 2022 before you sold it.
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