@Darcel12 wrote:
The house was Rental Property for 10 years after I lived in it for 25 years. The settlement company paid the house off and I got the difference. Do I have to add the entire amount as business income or the amount after I paid the mortgage off?
The home sale is not business or rental income. Instead, you report the sale separately. You will pay capital gains tax (at a lower rate than regular income tax) on your capital gains; this is the difference between the selling price and purchase price. You also have to recapture (pay tax on) all the depreciation you claimed or could have claimed while the property was a rental.
Your capital gain has nothing to do with the amount of cash you received. For example, if you bought the house for $50,000 and sold it for $250,000, your capital gain is $200,000. Suppose you had previously refinanced, and your loan balance was $200,000. Even though you only get $50,000 cash at the closing, the entire $200,000 gain is taxable. Remember you did not pay tax on the cash you took out when you refinanced, you just got most of your gains out early, but you pay tax on all your gains when you sell.
