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Old 03-30-2012, 11:46 PM
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Sale of a Rental First Used as a Home

I'm renting my home for the first time and have a question regarding further tax liabilities when I decide to sell.

---------
Purchased Home in 2006
- Cost: $200k

Changed to Rental on January 1st, 2011
- FMV at time placed into service: $175 (Land value = $25K)

Sold Home on December 31st, 2016
- Selling Price: $200k
------------

I start depreciation in 2011 on $150k (FMV - land value)
6 years of depreciation under GDS = $32,501

Assuming no improvements & no closing/realtor fees. I'm struggling to understand which one would represent my tax liability, Option A or B

OPTION A
Depreciation Recapture Tax = $8,125 // .25 * $32,501
Capital Gain Tax = $3,750 // .15 * (200- FMV_of_175)
Total Tax = $11,875

OPTION B
Depreciation Recapture Tax = $8,125 // .25 * $32,501
Capital Gain Tax = $0 // .15 * (200 - Actual_purchase_price_in_2006)
Total Tax = $8,125

If it is Option A--then it appears I'm being taxed on $25k I did not really gain!!


Last edited by Eddo : 03-30-2012 at 11:48 PM. Reason: spelling


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