We lived in our home from 1987 until 2009 and have been renting it since 2010. If we sell it do we have to pay capital gains or just pay taxes on the recaptured depreciation? We are trying to decide if we should sell or not. Also if we pay capital gains - would we use the beginning value of the property of when we started using it as an investment or the original value when we built it in 1987?
@Jimandpatti , in short you will pay ordinary income tax on the recapture portion of the gain and capital gain tax on any residual gain. Your basis for gain computation is the acquisition basis plus cost of improvements over the years LESS accumulated depreciation.
You can use TurboTax 2020 to compute your gain and taxes thereon -- save the filed return under a different name and then make the changes --- I am assuming here that you have the desktop version and preferably Home and Business
Does that answer your query or do you need more help ?
have been renting it since 2010. If we sell it do we have to pay capital gains
Yes, with the assumption that you were/are not military and moved out in 2009-10 because of official PCS orders requiring you to relocate.
would we use the beginning value of the property of when we started using it as an investment or the original value when we built it in 1987?
Your cost basis for the purpose of determining taxable gain on the sale is what you paid for the property originally, plus the cost of any property improvements, minus the total amount of depreciation taken on the property during the entire period of time you owned it.
If you report the sale in the SCH E section of the program, then the program will take care of depreciation recapture "for you", so that it's taxed correctly. Remember, recaptured depreciation is taxed at a maximum rate of 25%, even if your AGI increase resulting from the gain on the sale puts you into a higher tax bracket.
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