RentalCalcs / working records
Rental sale: basis, gain and cash
Reconcile the tax calculation separately from the closing cash. Mortgage payoff reduces cash; it does not reduce the taxable gain in this example.
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Illustration assumptions. US federal illustration: net sale proceeds of $700,000; adjusted basis of $350,000; $150,000 of depreciation; $250,000 loan payoff. Assumed tax is 25% on the $150,000 unrecaptured Section 1250 gain and 15% on the remaining $200,000 gain. The 25% rate is a maximum, not a flat rate for every owner.
Example and your records
Item and method
Hypothetical example
Your records
Gross price less qualifying selling costsReconcile settlement statement and asset allocations
Example$700,000
Your records
Basis before depreciationPurchase basis plus capital improvements in this illustration
Example$500,000
Your records
Depreciation allowed or allowableReconcile all depreciation schedules
Example$150,000
Your records
Adjusted basis$500,000 − $150,000
Example$350,000
Your records
Taxable gain$700,000 − $350,000
Example$350,000
Your records
Illustrated Section 1250 tax$150,000 × assumed 25%
Example$37,500
Your records
Illustrated remaining gain tax$200,000 × assumed 15%
Example$30,000
Your records
Total illustrated federal taxExcludes NIIT, state tax and other adjustments
Example$67,500
Your records
Mortgage payoffDebt statement; a cash item, not tax basis
Example$250,000
Your records
Cash after loan and illustrated tax$700,000 − $250,000 − $67,500
Example$382,500
Your records
Before using the result
- The example assumes qualifying long-term real-property gain, no Section 1245 components, no exchange, no suspended-loss offset and no other return-level adjustments. Actual rates depend on the return.
- Changing only the payoff to $0/$250,000/$400,000 leaves taxable gain at $350,000 and changes after-tax cash to $632,500/$382,500/$232,500.
- Bring the purchase and sale statements, improvement invoices, depreciation schedules, cost-segregation allocations and suspended-loss records to the preparer. A sale below original cost can still have gain above adjusted basis.