Capital Gains ON Rental Property
I just need to clarify the following scenario....
I bought a condo in 2002 and lived there for ~2.5 years. During the time I lived there I also rented out rooms to friends, since I moved out I have continued to rent the condo. I am thinking about selling.
Say i paid $85K for the condo and sell it for $98K. Since 2002 I have depreciated about 8K for the portion I was renting out (which makes the taxable value 77K). When I sell do I only have to pay the 25% depreciation recapture tax on the 8K and have the 13K profit tax free since I lived there 2 out of the last 5 years?
Thanks!
First answer - you do have to pay the 25% recapture tax on the sale.
If you sell it for 98 is that AFTER the RE commission and costs (if not, perhaps your gain is less than you think)?
The answer to the other question is more complicated. Sounds like you owned a home and rented out rooms the entire time. So presumably you depreciated the property and included the rental income on your Sch E.
It appears to me that you need to do an allocation for the profit between rental and personal use (perhaps based on the same ratio you used for the depreciation). So if 40% is from the rental, that portion (40%*13k) will be subject to LT cap. gains, while the other portion will be excludable for your personal residence.
Consult the IRS publications on rental properties for additional guidance.