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jovilady1
New Member

When calculating capital gains on property converted from prin res to rental, do you still have to use lesser of Adj Basis or FMV for capital gains?

I purchased a house in 2005 for 190K and then turned it into a rental property in 2010 when the FMV was only 143K because I couldn't sell it. I'm now looking to sell the property and am running into a significant gain issue because the market value was so much lower in 2010.  To calculate gain on sale, do i have to continue to use the lesser of adjusted basis or FMV?

1 Best answer

Accepted Solutions
TaxGuyBill
Level 9

When calculating capital gains on property converted from prin res to rental, do you still have to use lesser of Adj Basis or FMV for capital gains?

Because the selling price will be more than your Adjusted Basis, you use the Adjusted Basis ($190,000 purchase, plus cost of improvements, minus the $30,000 of depreciation) to calculate the gain.  So it looks like you have roughly a $80,000 Gain ($30,000 of depreciation, plus $50,000 of long-term capital gain).

If the selling price was less than your Adjusted Basis, it gets a bit more complicated.  However, that doesn't apply to you.


TurboTax incorrectly guides you for reporting this sale.  When you sell the "asset" in the rental section and you get to the "Special Handling" screen, you need to say YES.  Then you report the sale in the Sale of Business Property section, using your Adjusted Basis.

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3 Replies
TaxGuyBill
Level 9

When calculating capital gains on property converted from prin res to rental, do you still have to use lesser of Adj Basis or FMV for capital gains?

What will the selling price be?
How much depreciation was taken?
jovilady1
New Member

When calculating capital gains on property converted from prin res to rental, do you still have to use lesser of Adj Basis or FMV for capital gains?

240K, 30K
TaxGuyBill
Level 9

When calculating capital gains on property converted from prin res to rental, do you still have to use lesser of Adj Basis or FMV for capital gains?

Because the selling price will be more than your Adjusted Basis, you use the Adjusted Basis ($190,000 purchase, plus cost of improvements, minus the $30,000 of depreciation) to calculate the gain.  So it looks like you have roughly a $80,000 Gain ($30,000 of depreciation, plus $50,000 of long-term capital gain).

If the selling price was less than your Adjusted Basis, it gets a bit more complicated.  However, that doesn't apply to you.


TurboTax incorrectly guides you for reporting this sale.  When you sell the "asset" in the rental section and you get to the "Special Handling" screen, you need to say YES.  Then you report the sale in the Sale of Business Property section, using your Adjusted Basis.

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