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.
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.