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About John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. Kentucky state income tax also. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Sale of inherited rental property
Expert: John Stancil, CPA
Date: 5/11/2008
Subject: Sale of inherited rental property
Question
I live in Florida. My parents purchased a home in Florida for $80,000 in 1990. I inherited the home in 2000 after they passed away - the mortgage on the property at the time was $30,000 which I refinanced for the $30,000. I rented the property to my sister at a loss since she could not pay. The depreciation on the house was also deducted every year. The value of the property is about $190,000 to $200,000 and has a mortgage with on it for $27,000. I plan on selling the home to my son for $100,000. My wife and I have an annual income of approximately $120,000. I would like to know the approximate capital gain (if it can be determined from what I've provided), and what the approximate U.S. income tax rate is on the capital gain.
Answer
Michael,
Thanks for your question.
There are a number of issues in your question. First, since you did not rent the house with a profit motive you cannot show a loss on the rental. You can deduct mortgage interest and property taxes on Schedule A. If there is still a gain, you can deduct other expenses of the rental as a miscellaneous itemized deduction.
Since you did take depreciation, unless you submit amended returns the depreciation will reduce your basis. You did not state what the fair market value was at their date of death - that would be your original basis less the mortgage amount at death. T
The current mortgage amount is not relevant to your gain or loss. Since you are selling to a related party at less than FMV, you would recognize any gain, but may not recognize a loss on the sale. The capital gain rate would be 15%. I can't give you a dollar amount due to lack of your adjusted basis.
In addition, you must file a gift tax return for the difference in the selling price and the FMV. It is likely no gift tax would be due, as there is a $1,000,000 lifetime exemption, but a return must be filed anyway.
Hope this helps.
John Stancil, CPA
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