Capital Gains Calculation Date

Forum|Forum|4 years ago
February 6, 2022
3 replies
28 views

Hello, I purchased a property in 2003 for $70k and lived in the property until Dec 2017. At that time I started renting it and it was occupied as a rental until Dec 2021 when it was sold for $200k.

Does Capital Gains tax calculate based on the original purchase price from 2003 or the value in 2017 of $170k when it became a full rental property?

Best answer by DawnC

Yes, the basis is the original cost adjusted for any major improvements, which does not include things like new appliances.

Cost basis is the original purchase cost of an asset (such as stocks, bonds, or property), plus any adjustments that result from transactions over the period you own the asset. Examples of adjustments would be an increase in valuation due to a property improvement (see link for examples) or a decrease in valuation due to unreimbursed storm damage to the property.

I sold my rental property. How do I report that? Here are the instructions to use when reporting the sale of rental property as well as some helpful terminology tips.

LeonardS

Level 14

The IRS requires that you use the LOWER of the original purchase price, 2003 in your case, or the fair market value when it was converted to a rental in 2017 as your basis.

However, there are other factors that must be considered in calculating the gain/loss on a rental that was originally your home.

If a residence converted to a rental property is later sold at a gain, the basis in the converted property is the original cost or other basis plus amounts paid for capital improvements, less any depreciation taken. If the sale results in a loss, however, the starting point for basis is the lower of the property’s adjusted cost basis or FMV when it was converted from personal to rental property (Regs. Sec. 1.165-9(b)(2)).

This rule is designed to ensure that any decline in value occurring while the property was held as a personal residence does not later become deductible on the sale of the rental property.

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PwallAuthor

Level 2

So basically what they are saying is that even though I lived there 14 years before converting it the gains is based on the sale price vs the original purchase price minus any sort of major improvements like complete remodels, new decks, additions but not things like a new washing machine?

DawnCAnswer

Level 15

Yes, the basis is the original cost adjusted for any major improvements, which does not include things like new appliances.

I sold my rental property. How do I report that? Here are the instructions to use when reporting the sale of rental property as well as some helpful terminology tips.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"