My in laws are looking to sell a small house that they have been renting out. This not their primary residence. They have owned this house for ~30 years and it is completely paid off. What type of tax burden are they looking at? Is it strictly long term capital gains on the gain? Can they reduce the gain by including additional improvements that have been purchased over the years (i.e. HVAC, roof, water heaters, etc)?

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Posted by UpstairsComputer

Prairieville

Member since Jan 2017

1746 posts

Posted on 10/31/23 at 9:50 am to TigerTatorTots

Look into depreciation recapture. Then go to their tax returns and see what cost basis is. Then you’ll have a better idea.

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Posted by SloaneRanger

Upper Hurstville

Member since Jan 2014

10966 posts

Posted on 10/31/23 at 10:02 am to TigerTatorTots

Get an accountant to help. Did they rent it out, take depreciation, etc.? And yes, certain improvements can be used to adjust the basis upward, but you'll need an accountant to go over what is and isn't allowed.

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Posted by TorchtheFlyingTiger

1st coast

Member since Jan 2008

2669 posts

Posted on 10/31/23 at 1:12 pm to TigerTatorTots

What's their taxable income? If it is relatively low they may fall in the zero long term gains bracket for some of the gain. Might be worth timing the sale in a year they could minimize income, perhaps sell early in year so rental income doesn't bump their tax bracket up for instance. If they are well off and don't need the $ it could be advantageous to hold on and pass it to heirs with stepped up basis. As others have said they'll face depreciation recapture which I think is ordinary income tax rate.

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