Originally Posted by mqh123
How are our capital gains taxes going to be calculated?
you need to recapture sec 1250 depreciation expenses taken previously while th e pty was used as rental pty. Sec 1250 recapture depreciation is taxed as ordinary income taxed at 25% aslongas your tax rate is 25% or higher. Your basis fot he rental home is $100 and your LTCG is $96.9K; after subtracting the amt of sec 1250 taxed as prdianry income, the rest of the amt’d be LTCG taxed at 15% if your marginal tax rate is 25% or higher. The IRS considers rental property to be business property, so you can’t just report the gain or loss on your Form 1040. You must file IRS Form 4797 ;you must complete Part III of form 4797 to determine if you have a gain. Then enter the sec 1250 deprecaiiton directly on form 8949 SCh D of 1040.
Since you owned the property for more than 1 year, you must separate the sale of the structure from the sale of the land. The sale of the land is noted in Part I, and you enter the sale of the structure there as well .
Note; you need to consider the implications of a cheaper sale price. Sicne your mother sold the home to you for less than the fair market value, the IRS will consider the difference between the home’s sale price and fair market value , $51.9K, a gift since you won ‘t repay the full amount. So your mother had to file IRAS form 709 as the gift amt of $51.9K exceeded the annual exclusion amt of $10K for 1997.Since your tax basis in the home will be lower, you may have a taxable gain if you sell the property in the future unless you qualifies for the home sale exclusion NOT applied to your situation.