Joint Ownership Home Sale

[Kat2526]

My brother and I (both live in CA) inherited our parent's Michigan house.  

1) If we decided to keep it as vacation home for both of us and meet the 24 months (non-consecutive) of the 5 years requirement, are we qualify for the $250K exclusion (50/50 division)?

2) If yes on the exclusion, what documents do the IRS need for us to proof we've meet the 24 months requirement?  We don't want the IRS to assume we've rented the house since there is no rental income on our tax return.

3) Capital Gain calculation in this scenario is =Sale price less current market value at the time of my father's death...right? 

[tagteam]

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@Kat2526 wrote:

1) If we decided to keep it as vacation home for both of us and meet the 24 months (non-consecutive) of the 5 years requirement, are we qualify for the $250K exclusion (50/50 division)?

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It can't be vacation home and meet the home sale exclusion; it must be a primary residence.

[tagteam]

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@Kat2526 wrote:

3) Capital Gain calculation in this scenario is =Sale price less current market value at the time of my father's death...right? 

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Yes, that is the correct calculation.

[Kat2526]

Thanks, Tagteam.  If we decide to have the house as a rental, how do we calculate the gain after 3 years of rental?  I was told we have to recapture the 3 years of depreciation.  What is the gain for the rental in this example?

Death date market value=$300K.  3 years depreciation=15K ($5K/yr).  Sale Price=$500K

[tagteam]

Your starting basis would be the $300k (date of death fair market value) and you would subtract the $15k of accumulated depreciation to arrive at your adjusted basis.

Depreciation recapture (the $15k) is taxed at a rate of 0-25%. 

[Kat2526]

Tagteam,

So...my capital gain $215K=$500K (sale price) minus $285K (adjusted basis $300K death fair market value less $15K depreciation), right?...

[tagteam]

$215k is your gain based upon those figures and $15k of that (depreciation recapture) will be taxed at 0-25%.