Question

Sale of Rental House

Forum|Forum|6 years ago
October 10, 2019
1 reply
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We lived in our house from 1988 to 2007 and converted it to our second home. In 1988 we paid $89,900. In 2013 we converted it to a rental until 2018, when we sold it for $180,000. We received a payment in 2018 of $90,802.83 and a payment in 2019 of $80,000 from the sale. How is the adjusted cost basis figured? Original price or price when converted to rental property? Can I use Form 6252 to record sale as an installment sale since we received a payment in 2018 and 2019?

A

Anonymous_

Employee

@Desiree425 wrote:
How is the adjusted cost basis figured? Original price or price when converted to rental property? Can I use Form 6252 to record sale as an installment sale since we received a payment in 2018 and 2019?

Since you sold the property for a gain, you will use the cost basis (adjusted cost basis is the original purchase price plus improvements less any casualty/theft losses claimed less depreciation allowed (or allowable).

You can use the installment method if you receive at least one payment after the close of the tax year in which the sale occurred.

[note that if your installment sales contract does not provide for adequate stated interest, part of the principal may be recharacterized as unstated interest or original issue discount for tax purposes. You must use the applicable federal rate (AFR) to figure the amount of stated principal recharacterized as unstated interest or original issue discount.]