If I sell the rental that I inherited eight years ago and the step up was 77,000 and I sell it for 114k what will I pay in taxes? Thanks

[lifebaptist17]

I inherited my fathers house 7 years ago & have been renting it. I just sold it for 114k & I will receive 106k after all said & done. When I did my taxes that year it stated the was valued at 77k. What will I owe in taxes? Thanks 

[Critter]

Have you been depreciating the property as required by law ?   If you have not then seek professional tax prep help to correct this error first ... then ask them about the sale.

[Hal_Al · Accepted solution]

When you inherited the property, you should have split the $77,000 stepped up cost basis into two pieces, land and improvements (the building). You then began depreciating the building basis.

Your net long term capital gain, for the sale,  = proceeds of the sale minus cost basis plus depreciation claimed over the years (106,000 – 77,000 + 13,000 [my guess for approx amount of depreciation] = $42,000 capital gain.

Another way to say that is: your  cost basis must be adjusted for depreciation recapture. $77,000 - 13,000 = $64,000 new cost basis. 106,000 – 64,000 = $42,000 capital gain.

The depreciation recapture portion, of the gain,  will be taxed at ordinary income rates (but not more than 25%). The rest of the capital gain will be taxed at long term capital gains rates (some at 0% and some at 15%).

For an estimate, try this tool https://turbotax.intuit.com/tax-tools/calculators/taxcaster/?s=1. Enter your regular income first to see the regular tax. Then add the sale to see the effect.
Enter the ( 106K – 77K = 29K ) as a long term capital gain (LTCG). Enter the depreciation (13K) you've taken over the years (depreciation "recapture") as other income.