Help with Sell of Rental Property - When the market had gone down, we held on to our property and rented it. We just sold it in 2015. How do we figure Capital Gains?

[mwj]

We purchased the home in 2003 and tried to sell in 2007.  The market crashed and we held on to it as a rental.  The rent covered the mortgage, so we never made in income on it.  We sold the home in 2016.  Unfortunately, it looks like we have to pay capitial gains on it.  How do we figure out the portion of the capital gain that we have to pay taxes on?

I don't know if this could help us.  We have moved out the home we sold to our new home to take care of my elderly parents.  When the market crashed, we were not able to sell and converted it to a rental so we would loose the house.

Thanks. 

[view2 · Accepted solution]

The unknown is the basis you used for depreciation.

When you change property you held for personal use to rental use (for example, you rent your former home), you figure the basis for depreciation using the lesser of fair market value or adjusted basis.[separate land value ,land is not depreciated] 

Depending on your circumstances you might want to seek the service of a CPA for the best tax reporting of your particular situation.

This sale has to be calculated two different ways to arrive at your actual gain or loss.

[mwj]

For the fair market value, is this the value of the property when turned it into a rental in 2007?  And not the purchase price in 2003?

[view2]

The depreciation when converted to a rental in 2007 is based on the lesser of the adjusted basis or FMV on date placed in service. [separate land value, land is not depreciated]

Then when you sale a primary home  converted to a rental  you may have to calculate the sale two different ways.

When you have a gain you will fall back to original adjusted cost basis .
The sale of a home conversion will need to calculated two ways  and recaptured depreciation is considered in all cases.  Both cost basis is used in the calculation and then you get an and/or factor.

Basis of Property Changed to Rental Use

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p527/ch04.html#en_US_2016_publink1000219151">https://www.irs.gov/pu...>

Unfortunately this is a not a simple ask and reply situation ,basically it depends and then the clincher a " and /or."