Capital Gains Tax on Rental Property Sale

[gotnukes8]

This year (July) we sold our rental property in Illinois. As tax season approaches, we are trying to understand what (if any) tax we might pay on the sale. Below are the details.

February 2010:  Bought home for $265,560

February 2010 thru June 2014:  Lived in the home as primary residence

July 2014 thru July 2019:  Rented the house and claimed the rental income each year on taxes

July 2019:  Sold house for $257,000

Based on what I am reading, because we sold the house for $8,000 less than we purchased it for, we actually took a "loss" and therefore the sale is not subject to capital gains. Is this accurate? Are we missing something in the calculation? 

Of note, the $8,000 is based solely on the purchase and sale price and I have not yet factored in all costs and fees that we could claim as my hope is that we won't need to worry about that. If my understanding is correct, those fees and costs won't be needed. 

[soultax09]

you use the lesser of cost or FMV to figure a loss but you don't have a loss. You forgot to factor in 5 years worth of depreciation deductions and those reduce your basis and are taxed at ordinary income rates to a maximum of 25%. So, take your basis and subtract depreciation and then subtract that figure from your sales price - less sales expenses - plus improvements you made to get your net gain.

[gotnukes8]

For the 5 years we rented the house out, we never claimed depreciation on our taxes. So I assume that we will be subject to depreciation recapture when we file our taxes. 

Is there any easy way to figure out what that depreciation recapture will look like? A calculator we can use to get an idea of what we will owe?

Thanks!

[Anonymous]

the tax laws require you to recapture depreciation even if you didn't claim it.     depreciation on the house would be about $10,000 per year for.  5 years it means you lost $50,000 in tax deductions.   the tax rate on depreciation recapture varies but it could be 25%  and then there could be state taxes.   when you sell rental property at a gain (after expenses) the first part of the gain up to the amount of depreciation taken or allowed is taxed first.  then any excess is taxed as capital gain.  the issue of not taking depreciation can be rectify by filing for a change in account methods.  this should be handled by a tax pro.   

[Critter]

Seek local professional assistance ASAP to get educated on this situation ... you will need them to file the form 3115 with the 2019 return next year ... do NOT try this yourself.  

[gotnukes8]

Hired a CPA this morning. Thanks!