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Level 1

Capital Gains/deductions on former home turned rental

I've got a number of questions on a property I sold in 2020 -- the history is as follows:


- I purchased the condominium in 2002 for $120,000

- In 2004 I got a home equity loan for $140,000 from Wells Fargo to cover the property and mounting credit card debt

- I moved out of the property in 2011 and began renting it out

- In 2012-2013, the terms of the Wells Fargo loan were revised as part of a settlement on predatory loans

- I paid off the mortgage in full in 2017

- I sold it for $165,000 in 2020


My questions are - does the $140,000 loan affect my capital gains on the property at all? And can I deduct interest paid on the property over the years I lived there from the capital gains?




2 Replies
Level 15

Capital Gains/deductions on former home turned rental

The only thing you need to consider when selling a rental property is the basis of the home when it was placed into service and started depreciation, the depreciation taken along the way, any possible improvements added to the depreciation  and the sales price + cost of sale.   All the lines between your first point and the last are immaterial.   You may want to either upgrade to LIVE for more assistance or seek local professional help for this year's return so you fully understand what is happening.    If you have NOT been taking depreciation all these years then RUN to a local tax pro to get this situation corrected properly on the 2020 return.  This correction on form 3115 is not a DIY project and the TT program will not help you at all. 

Level 1

Capital Gains/deductions on former home turned rental

Thank you for this. I am going to upgrade to live. We've been taking depreciation since we began renting it out. So if I read your reply correctly, anything that went on while the property was my primary home is immaterial to the capital gains?


Appreciate the response -


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