Taxes on sale of property

[Cavachon1]

if you sell a home that you’ve lived in for at least two out of the last five years that was also partially and intermittently rented over several years, when you sell it, do you have to pay only depreciation recapture or do you have to also pay capital gains for the time you were receiving rental income?

[pk]

@Cavachon1 , 

In general, rented/income property  gets a basis reduction by accumulated allowable depreciation ( whether recognized or not). Depending on your other income , rental income. rental expenses etc. you may also have suspended losses.  In your computation of gain all these factors will play a role.

This gain will then be divided into two categories --- that portion due to accumulated depreciation will be treated as Ordinary income  and taxed at your marginal rate  ( Re-capture );  the rest of the gain is treated as capital gain and given capital treatment.  Thus the disposition of mixed use property  will generally  be taxed partly as ordinary gain and partly as capital gain -- priority being  ordinary gain ( as re-capture).

Does this make sense ?  Is there more I can do for you ?

[M-MTax]

In addition, note that although depreciation recapture is taxed at the taxpayer's marginal rate, it is capped at 25%.

[AmeliesUncle]

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@Cavachon1 wrote:

 that was also partially and intermittently rented over several years

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At any time during your ownership, was the home NOT your "Principal Residence" (for example, you rented out the home for a while and you made another home your "Principal Residence" for a while)?

When it was partially rented, was the rented portion within the same building as your residence (for example, renting out a room), or was it a separate building?

When it was partially rented, was the rented portion a separate "dwelling unit" (such as a mother-in-law apartment, with its own entrance, kitchen, bathroom, etc.)?

[Cavachon1]

will I be able to apply the 250,000 IRS sales exclusion to the home or to only half of the home or the portion that was not rented?

[AmeliesUncle]

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@Cavachon1 wrote:

will I be able to apply the 250,000 IRS sales exclusion to the home or to only half of the home or the portion that was not rented?

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The questions I just asked you will help determine that answer.

[Cavachon1]

the portion that was rented was half of the home with its own separate entrance and facilities – kitchenette and bathroom with shower.

[Cavachon1]

I was a resident in the home for all the years except for the last year 2024.