Possible GAIN on land after sale of rental property (Condo unit?!?!. We did convert it over personal use to rental.

[easygoing0420]

It is possible to pay a gain on the land? When we converted our Condo to rental back in 2012 we took the FMV at the time of conversion of $54,700 because it was lesser than the original purchase price of $128K, even if we allocated out building portion of 75% that came to $96,000. Then we allocated out building for depr and land from the $54,700. Looking at the tax assessment it was 75% building and 25% land. So for land we took $54700*.25 and have land $13675. Fast forward we sold the rental property Jan 2019 for $104,000. For sale price we allocated out building 75% which shows sales price of $78,000 and the remaining $26,000 went to land sale.  We know that land is never depreciated.

So our calculation shows sale of land for $26,000 minus $13675 gives us a gain of $12,325.

Is the correct? We will pay tax on $12,325?

For our Condo sale, we didn't have a gain or loss. Our Sale price was between the two cost basis.

We are not sure about the land portion, any help would be greatly appreciated.

Thank you.

[ColeenD3]

Yes, it is absolutely possible to have a gain on the land portion.  25% of a high sales price vs 25% of a smaller basis produces a gain. It actually works out in your favor. It is considered to be Section 1231 property which receives capital gains rates. There is no possibility of depreciation recapture.