Sale of rental home. How does the existing mortgage payoff affect the gross proceeds.

[ramdo]

I had to payoff the mortgage on my rental property but the program doesn't seem to reflect this.  Is it considered an sellers expense?

[view2 · Accepted solution]

Try this with pen and paper.

The formula for calculating your cost basis on rental property is as follows:

* Purchase price

* + Purchase costs (title & escrow fees, real estate agent commissions, etc.)

* + Improvements (replacing the roof, new furnace, etc.)

* + Selling costs (title & escrow fees, real estate agent commissions, etc.)

* - Accumulated depreciation (as reported on your tax forms)

* = Cost Basis

And then calculating your profit or loss would be:

* Selling price

* - Cost Basis

* = Gain or Loss

Mortgage payoff is NOT a factor.

[achoks2]

When calculating the accumulated depreciation, do I include the year for which I'm doing taxes? For example I bought a house in 2013 and sold it in June 2018. Do I include the depreciation from 2013-2017 or 2013-2018?

In other words, do I look at my depreciation worksheet for 2017 to find the accumulated depreciation and add the amount TurboTax calculates I'll depreciate for 2018 or is that a separate calculation?

[stevekayak]

As I understand it, unless you close on January 1st, you will have additional depreciation for 2018 so 2018 Current Depreciation off of Form 4562 must be added to Prior Depreciation to establish your basis.  Common sense dictates that the property, and all the other depreciating items listed on f4562, continued to lose value during 2018. 

When you tell TurboTax when you sold or disposed of the property (closing date in June 2018) it will calculate 2018's depreciation up to that date.