Question

Capital Gains (Cost Basis)

Forum|Forum|4 years ago
April 1, 2022
1 reply
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We purchased a home as residential and 4-5 years later built our permanent home, then turned the prev home to rental prop. We sold the rental 2021. Are we correct to calculate cost basis: Cost of home (minus land) at time of rental + improvements after transfer + mortgage balance at time of transfer. This is the cost of basis.

M

Mike9241

have you been taking depreciation on the rental? if not, I would recommend you seek professional help. the tax laws say you must take deprecition. if you don't when you sell you must still pick up as taxable income the depreciation you should have taken.

for selling proposes your cost basis is what you paid 4 or 5 years ago (the purchase price on the closing statement + closing costs - not all items on the closing statement are closing costs) for it plus any substantial improvements afterward. the mortgage does not enter into your cost basis.