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Level 2

Capital Gain on a rental house

We bought our house in 1987 for $108,500. We started renting it out in 2015, and made improvements through the years totalling $207,000. (including cost to sell) The house sold it in 2019 for $315,000. Is my capital gain the difference of $108,200 minus the depreciation recapture amount?

5 Replies
Level 15

Capital Gain on a rental house



$315,000 - depreciation amount - $108,500 - $207,000 = your profit ; part of that profit will be paid as recapture tax, the rest is capital gains / loss.   

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Level 2

Capital Gain on a rental house

Huh? Well that's alot better than how I thought it went! Can you show me the math?  The total depreciation taken is approx $15,000.

Level 15

Capital Gain on a rental house

you sold the property for $315,000 


you purchased the property for $108,500 and you further invested an additional $207,000, so your total 'cash invested' is $315,500.  From that figure, you depreciated $15,000, so your 'cost basis" is $300,500.


the difference of the two numbers is your profit: $315,000 - $300,500 or $14,500 of profit.  You will owe taxes on the $14,500.   


Not to complicate matters, but if you had 'passive losses' that you could NOT deduct off your taxes in prior years THAT number is to be subtracted from the $14,500 gain as well.  If the result goes negative, you have a capital loss and that can be deducted from your taxes as well (maximum $3,000 against wages, etc. losses each year).


for this one year, might be worth hiring an accountant; however TT can handle this stuff; just go slow and carefully. 


ps technically your costs to sell the property are to be subtracted from the sales price and not added to the cost basis.  the end result is the same but it's just the way it's done. 

Level 2

Capital Gain on a rental house

Thank you so much for your help, I just now saw your 2nd response.  I wish those figures I gave you were right, unfortunately I made a BIG mistake, the $108,500. purchase price was included in the $207,000.  We'll owe taxes bigtime! Doesn't seem right that the cost basis goes back 31 years to when we bought the house, when we only rented it for 4.  Seems like it should have been calculated on the value of the house when we converted it.😖

Expert Alumni

Capital Gain on a rental house

In IRS Publication 523, Selling of Your Home, Worksheet Number 2 is used for computing your gain or loss.  This might be helpful to you in computing the gain on your home.  

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