USA Please "(a.)," "(b.)" or "(c.)."

[Jaes]

Recently, I posted the following: "30 years ago, I purchased a rental property for $35,000 (land apprised at 5K and building appraised at 30K). So I have already depreciated the building (30K) over the 27.5 years --and, thus, "basis" = $0. Today, the property appraises at $350,000 (land 15K and building 335K). I am going to sell property for $350,000. Multiple Choice Question: Do I pay capital gains on: (a.) 350K (sales price) - 35K (purchase price)? (b.) 335K (appraised value at sale of building) - 30K (appraised value of building when purchased)? (c.) None of the above (explain) _____________________." ---The reply I got was as follows: "Cap gain is net price less basis. Transaction needs to be split between land and depreciable assets. Depreciation portion of gain is recaptured at 25%" ---With respect, if I had knowledge of tax code/accountant language ---or if I were intelligent enough to know the meaning of the reply (as it pertains to my specific situation); then, I would not have needed to post the question in the first place. At this point, it would be most helpful if someone would, actually, read my situation, as outlined; then, choose answer and post "(a.)" "(b.)" or "(c.)" as a response to my request for help. Naturally, if answer "(c.)" is chosen, you would need to explain. If "(c.)" is chosen, I would ask that the explanation not quote tax code, but rather, put in language that a 10 year old (of average intelligence) would understand. Thanks, in advance, for a helpful "(a.)" "(b.)" or "(c)" response. ---Jaes.

 

[bklynboy]

Its c. In all fairness, you should ask a tax professional to help you with this so that it is appropriate for your exact situation. Should be fairly cheap and very cost effective if you do not understand how this works. The response was accurate given the limited information provided.

The response given in simple terms its your proceeds from sale (less certain closing costs) less the basis in the property. Basis would include your original purchase price (cost basis) plus improvements and certain other outlays to the property (adjustments to basis). You also have to recapture depreciation that you benefited from while you were holding the property and previously deducted (not provided either). Appraisal means nothing (choice b).

I strongly recommend you research the basics on Google as this is something you should be familiar with if you are selling so that a more specific question can be asked. Here are some general sites:

https://www.nolo.com/legal-encyclopedia/determining-your-homes-tax-basis.html
https://en.wikipedia.org/wiki/Tax_basis
https://www.investopedia.com/terms/d/depreciationrecapture.asp

 

[Bluefish]

The tax consequences in how a property worth $350,000 is handled can be costly. You should follow bklynboy's advice: Get thee to a good tax professional--like an experienced CPA. I suspect there are facts you may not be considering. So let an experienced tax person sort out all the issues for you. The peace of mind alone is worth the price.