Sale of Rental after 27.5 Depreciation

[Ernest Rogers]

I have a home used as a Rent to Own. Yhe renter now wanys to try and buy the home. On my taxes, i have claimed the rental payments as income, and also depreciated the 27.5 years for the past 2 years. This may be the 3rd year claimed. The question is. The sales price will be higher than value. So what will i need to factor in when selling the home. Typically it's value is around $90k-$100k, however, purchase price was $65k. I am offered to the renter per his own agreement a price of $75. So $10k above.

Would this depriciation be figured in at time of sale, or at my personal tax time? (I beleive on my taxes that following year) so how much would I be taxed on the sale ???

I don't care about making profit, however, profit would be nice. Just dont want to owe or be in the hole after the sale, just to help a family out !

[Michael Plaks]

@Ernest Rogers

All taxes are due at the time you file your tax return for the year of sale. So if you close this sale today, Feb 2019, you will owe taxes next spring, the spring of 2020.

Value is irrelevant for taxes, however this makes me question your motives - this "to help a family out" thing. It could change tax implications if the whole thing is not done for profit, for example helping a relative or a friend.

That concern aside, this is roughly what should be your numbers.

1. You should have been depreciating the $65k, minus land value, so maybe $50k. 

2. Depreciation of $50k for 3 years is maybe $5k.

3. When you sell, you recapture this depreciation at 25%, resulting in less than a $1,500 tax

4. You will also pay a 15% capital gain tax on the difference between $75k and $65k - another $1,500 tax.

5. So the total maximum tax is about $3k. In reality, it should be less, due to closing costs. It could also be less (and even zero!) depending and your overall tax situation.

6. You might also have some unused losses from the 3 years of renting, and that will reduce your taxes further.

Bottom line: should not be more than $3k.