We sold a house that has been a rental property for 5-6 of the 16 years we owned it. How do I pay capital gains taxes in turbo tax?

You will report a Gain or Loss with Schedule D. To determine this gain or loss it is advisable to have the cost basis of the property at the time that it became a rental property. Additionally you can place any Capital Improvements made to the property to the Cost Basis. Capital Improvements can be items such as installing and HVAC system, Updating Wiring/Plumbing, or even Landscaping.

Please keep in mind that if you amortized the Cost of the house and claimed a Depreciation Deduction during the time that you rented the property, you will be subject to Depreciation Recapture. This occurs when you receive the benefit of deducting the depreciation but made a Capital Gain from the sale. For Real Estate purposes it has a specific name, Unrecaptured Section 1250 Gain. This rule affects the way you claim a Capital Gain or Loss.

For example, let's say you bought a property for $80,000 and took $15,000 of depreciation.  Depreciation is saying that the property is now worth $65,000, this is now your adjusted 'basis' for calculating the gain or loss. You were able to deduct $15,000 that reduced your ordinary income.

Now you sell it for $120,000.  By taking depreciation, you told the IRS that it was worth $65,000. Because you sold it for more than that, the profit is taxed.  Because you were able to deduct the $15,000 of depreciation at ordinary tax rates, you must pay taxes on it at ordinary income rates (up to 25%).

To Enter Capital Gains please follow the instructions in the FAQ below:

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