Solved: Personal Residence Converted To Rental
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Level 2

Personal Residence Converted To Rental

Bought a house as personal residence in 2001 . Converted it to a rental in 2013 and sold it 5/1/2020. Last tenant/rental income was for December 2019. However never moved back in and had no renters in 2020. Original cost in 2002 was $112,000. Improvements done up until conversion to rental were $65,000(new kitchen, new deck, new roof , finished basement etc) so basis at time of conversion was about $177,000.  Additional improvements during rental phase were approx $2,000 (new fence).  So basis then is about $179,000. Improvement done in  2020 after renter moved out are about $10,000 (new floor). Total depreciation taken during rental period is $32,830.  Sold for $229,500 with closing cost of about $23,500 (commission etc,  credit to buyer$ 6,898) .

 

I assume since didn't live in the house after 2013 that the only relevant factors her are as a rental? Does the FMV at the time of conversion have any bearing on the equation? I am not 100% certain I understand how all of this goes together to figure capital gains/deprecation recapture? Any input is greatly appreciated. TIA

2 Best answer

Accepted Solutions
Level 15

Personal Residence Converted To Rental

Net proceeds are $206,000 (229,500-23,500).  206,000 - 189,000 (179K + 10K) Basis = $17,000 long term capital gain (LTCG). In addition, you have $32,830 of depreciation recapture.

 

Depending on how much total income you have LTCG are partially taxed at 0%, 15%, 20% and/or 23.8%. Depreciation recapture is taxed at your marginal rate, but not more than 25%.

 

Yes, you get no credit for the time it was your residence. The FMV on conversion is not relevant, in your case. 

View solution in original post

Level 10

Personal Residence Converted To Rental

While the above provides the correct result, the input into TT will be as follows:

  • Selling price is the $206,000
  • You basis is $156,170 ($189,000 original plus improvements less the $32,830 in depreciation)
  • This results in a total gain of $49,830
  • TT will then appropriately split the gain into the correct components of the gain
    • $32,830 in depreciation recapture
    • $17,000 in capital gain

The FMV of the property on the date of conversion might have come into the equation had the sale generated a loss, which is not the case based on your facts.

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

4 Replies
Level 15

Personal Residence Converted To Rental

Net proceeds are $206,000 (229,500-23,500).  206,000 - 189,000 (179K + 10K) Basis = $17,000 long term capital gain (LTCG). In addition, you have $32,830 of depreciation recapture.

 

Depending on how much total income you have LTCG are partially taxed at 0%, 15%, 20% and/or 23.8%. Depreciation recapture is taxed at your marginal rate, but not more than 25%.

 

Yes, you get no credit for the time it was your residence. The FMV on conversion is not relevant, in your case. 

View solution in original post

Level 2

Personal Residence Converted To Rental

Thank you!

Level 10

Personal Residence Converted To Rental

While the above provides the correct result, the input into TT will be as follows:

  • Selling price is the $206,000
  • You basis is $156,170 ($189,000 original plus improvements less the $32,830 in depreciation)
  • This results in a total gain of $49,830
  • TT will then appropriately split the gain into the correct components of the gain
    • $32,830 in depreciation recapture
    • $17,000 in capital gain

The FMV of the property on the date of conversion might have come into the equation had the sale generated a loss, which is not the case based on your facts.

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

Level 2

Personal Residence Converted To Rental

Thank you!

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