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Re: Selling rental property
on September 19, 2017 @22:03
You are talking about several things here. First, the amount of mortgage you have on the property now, has nothing to do with how you figure how much capital gains tax you will owe. Once you sell your property, and the cap tax is figured, you will owe what you owe, whether you have $1,000 mortgage or a $200,000 mortgage on it currently.
10 years ago, you bought the property for xxxxx, put $150,000 more into it, and started renting it out. XXXXX plus the $150,000 , less the amount you designated for the land value(which can't be depreciated) gives you your tax basis for the property. That amount , divided by 271/2 years, is the amount you have been taking as depreciation each year, for the past 10 years.
So now you go to sell the property. You take the 10 years of dep. off the original amount you started to dep. , and add back in the land value. That final figure gives you how much your property is NOW worth, according to the IRS, for figuring the cap tax. Now you sell your property for zzzzz. That sale amount less all your selling costs, is your final sale price ON PAPER. Your "final" sale amount, less your current tax basis, is what you pay the cap tax on, REGARDLESS of how much money you walked away with, after the mortgage was paid off.
The 1031 tax deferred exchange you referred to, is very complicated to do, and things have to work out just perfect to be able to do it. Someone else can go into that later for you.
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