We really need more information. How long has the seller depreciated the rental and when did this depreciation began. It’s not just the increase in value, but the recapture of depreciation combined with the appreciation that will determine the seller’s tax liability.
Also, what improvements has the seller made to the property and were the improvements capital improvements.
Or anyone else in Washington that can help. A seller got back to me with news yesterday that her accountant informed her she would be paying 18k in capital gains taxes on the sale of a 150-160k house.
She has rented this house to the potential buyer for approx 2 years. Renter wants to buy, and she’s ready to sell.
Seller owes 110k with selling price of 155k minus 10k repair money for LP siding. After closing and excise, seller would put 25-30k in their pocket - without CG tax!
Is this amount of tax correct??? If so, that surely kills the deal.
What creative strategies are available that someone could suggest to make this work?
Without getting into specifics, because I don’t have the time to research it, that amount of tax is really high on $25k-$30K, it can’t be just capital gains. Phil made a good point. There is an issue of depreciation recapture…I think it’s section 1050 in the code, where some of that depreciation that the seller took in those 2 yrs would have to be recognized as income. The $10K is a leasehold improvement is is capitalized to the house, which Phil stated as well.
Off the top of my head I can’t tell you more. I’d need ALL the specific as well as how her accountant came to the numbers he has.
It would qualify for long term capital gains because it was held for long term, longer than a year and because it’s not a flip.
Hopefully Blane won’t jump all over me on this one…just joking…ha ha!