We have a separate structure in our back yard which includes an apartment which we rent out.
We are selling the entire property. How do I calculate the value of the separate structure?
The realtor's listing values the home then mentions the second structure as an added bonus but I can't get any clear figure from then on how much value that structure adds in the sale.
When I do my taxes I'm going to need to pay capital gains tax on the portion I rented out... but how do I calculate what the gain was?
there is no formula or standard you can use. What you need is an appraisal.
When I do my taxes I'm going to need to pay capital gains tax on the portion I rented out... but how do I calculate what the gain was?
The portion rented out should already have a value that was established by you in the first year you rented it out. (I am assuming 2020 was not the first year you rented it out.) That value is on the IRS Form 4562 which is tied to the SCH E you used to report the rental income & Expenses. You can not depreciate the rental portion as required by law, without that portion having a value.
Agreed ... since you HAD to be depreciating the property while it was a rental then you HAD to have calculated the % of the property basis belonged to the rental unit. So if you decided that 25% was rental when you placed the asset into service then 25% of the sales price and cost of sale belongs to the rental.
If you never depreciated the rental then you REALLY need to find local professional assistance to fix this error correctly ... this is not a DIY project.
Thank you @Carl and @Critter-3
I have been taking depreciation. I'm not sure how I came to the figure for its value 16 years ago, but the problem we have is that while we have spent a lot on our house and significantly increased its value (it literally hadn't had any work done on it since the 1940's) we have done nothing at all (other than maintenance) to the apartment and if anything that building is worth less now than when we bought it.
I think I'm going to go with @Mike9241 's suggestion and get the apartment appraised separately and then use that as my current value for it.
I really appreciate your help and input. Thanks again!
get the apartment appraised separately and then use that as my current value for it.
That's not how it works when selling the property. The current appraised value is not used to determine cost basis for the purpose of determining gain or loss on the sale. (unless the property was inherited. Then your cost basis is the FMV of the property at the time the person you inherited it from, passed away.)
For determining the gain/loss on the sale, your cost basis is what you originally paid for it, plus the cost of any property improvements, minus the total depreciation taken during the time you owned it.
The land value and the personal property value will be sold as one piece in the personal residence section of the program and the rental portion will be sold separately on a form 4797 thru the Sch E section of the program. This is one of those times where using a paid tax pro would be wise so you get this done correctly as this is nothing the program will walk you thru automatically ... a lot of the calculations will need to be done by you so the amounts entered can be correctly divided between personal & rental.