Sales of Rental Property that used to be primary residence

[Mike_B]

I sold my rental property in 2020 for a profit. I bought the property in 1990 and used it as my primary residence for 6 years. I rented it out for the last 24 years.  Do I pay capital gains on the total gain (sales price - minus basis + depreciation recapture) or can I pro-rate the gains by the percentage of rental use to total use  (24 yrs/30 yrs). If not, can I use the FMV in 1996 as the original basis?

[ColeenD3 · Accepted solution]

You will use the (sales price - minus basis + depreciation recapture) formula. The depreciation recaptured is taxed as ordinary income. There is no proration.

When you placed the asset in service, you were to use the lower of the FMV or Adjusted Basis on the date of conversion as your basis for depreciation. 

[ColeenD3]

No. You cannot use the FMV as the basis. The basis is the basis.

[Carl]

You will pay tax on the entire gain. There is no proration of anything for you. In order to qualify for the capital gains tax exclusion, or any part of it, the property must have been your *primary* residence for at least 2 years of the last five years you owned it, counting back from the closing date of the sale. Since the property has been a rental since 1996 or 97, you don't even come close to qualifying normally, or under any of the exceptions either.