I was told that if we don't make over 80,000 per year, that we don't have to pay capital taxes on the sale of the home. Is this correct? If not, what expenses can I

[Crystalclear805]

So I sold my rental property this year. I was told that if we don't make over 80,000 per year, that we don't have to pay capital taxes on the sale of the home. Is this correct? If not, what expenses can I use to lower my taxes.  We did not rent it the entire of 2021, and we spent many thousands on getting it prepared for purchase.  We also had to pay off a mortgage loan on the house.  Please help me have the correct info.

[ThomasM125 · Accepted solution]

It is true that if your income is under $80,800 and you file as married-joint, there is no capital gains tax on long-term capital gains. However,  since you sold rental property, you will have to treat the depreciation you where allowed to deduct on the property as ordinary income up to the amount of your gain on the property, and as such that portion of your gain will be taxed at ordinary tax rates, with a limit of 25% tax rate.

For instance, if your allowed depreciation was $10,000 during the time the property was rented, and you had a gain of $50,000 on the sale, $10,000 of your gain would be taxed at ordinary tax rates, up to a maximum of 25%.

[Crystalclear805]

I'm not sure how much allowed depreciation there was during the time it was rented.  Turbotax calculates a lot of stuff for me, so it is probably in the Turbo calculations somewhere.  So to make sure I am understanding, does that mean if we made $100,000 gain on the sale of the home, we would only be responsible for paying taxes on the allowed depreciation of $10,000 (or whatever it is) and not the $100,000 gain?

[AmyC · Accepted solution]

Without seeing everything on your return,  here is what I can tell you. For a rental house, you must report the sale. You will need to  go to your depreciation of assets and mark that you sold/disposed of the property and each asset, continue through that section. See Need to enter sale of rental property where do I find this schedule?

The sales price should match the 1099-S you received.

The cost basis is what you paid, plus improvements plus expenses of sale.

Holding period would be long term if for more than 1 year.

Land does not depreciate, only the house.

The program tracks the depreciation for you over the years.

Other assets being depreciated, like appliances or a roof, must be marked as sold with a sales price of zero since they were not sold separately. 

See About Publication 544, Sales and Other Dispositions of Assets for details relating to you.