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I bought an apartment in Washington DC in 1995 to live in. Subsequently I moved out of DC (and a few years ago, out of the country) but kept the apt and rented it out for many years. I paid the mortgage off a few years ago. Eventually, I decided to not rent it out any further (my last tenant left in early 2020). I sold the apartment in summer 2021 and now I have to pay capital gains tax. For tax purposes, is the apartment:

  • my "main home" (doesn't seem to me as I live elsewhere);
  • a "rental/investment home" (I didn't really buy it with the intention of investment, and at least for the last year and a half, it was not rented at all);
  • or a "second home" (at least for the last 1 ½ years of it, it was a home that I kept for my own use)

To further add a wrinkle, given the passage of time and all my subsequent moves and life changes, I don't have any papers from the original purchase of the apartment. I remember the purchase price I paid for it but nothing else. What can I do to establish the cost basis for the apartment? (I have written to the bank that gave me the original mortgage in the hope that they may have a record but haven't heard back from them yet.)

Update: what are my options if I can't find any papers relating to the original settlement?

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  • did you stay the night at any time during that last 1.5 years you owned it but didn't rent it? have you been submitting schedule E for the years you have been renting it out? Have you been taking a homestead exemption for the property on your DC taxes? May 16 at 10:11
  • very good questions (and I should have thought of them in advance), thanks. In the last 1.5 years I did not stay there mainly because I was not able to travel back to DC on account of the pandemic; When I was renting it, I was reporting the income on my federal taxes; I did not take a homesetead deduction on the property ever.
    – punkish
    May 16 at 10:19
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    On your federal taxes you would have been depreciating the value of the apartment. That annual amount was first calculated when you submitted your income taxes for the first year you rented it. May 16 at 10:30
  • mhoran - "should have been depreciating". Too many forget this requirement when converting to rental. May 16 at 13:14
  • oh boy, that sent me down a memory lane. Strangely I found my tax documents going back to when I first started renting the apt, and while there is some depreciation calculations (done by whatever tax software I was using then), I don't see any original purchase price
    – punkish
    May 16 at 13:46

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You're probably asking how to characterize it to your tax software. It is an investment property.

my "main home" (doesn't seem to me as I live elsewhere);

No. It is "mixed use", though.

a "rental/investment home" (I didn't really buy it with the intention of investment, and at least for the last year and a half, it was not rented at all);

Yes. There are some rules on mixed use properties with regards on how the cost basis is calculated for depreciation purposes which may be relevant to you.

or a "second home" (at least for the last 1 ½ years of it, it was a home that I kept for my own use)

No.

You can read more details in pub 523.


Specifically for cost basis, you can try the following:

  • County/City property tax records
  • Closing attorney/title company, if they still exist
  • Title insurance, if you still have any records
  • Mortgage origination paperwork, if it still exists (if you paid the mortgage off within the last 7 years, the bank should still have records)
  • Your own tax records - if you properly depreciated the property, you can reconstruct the original purchase price/cost basis from there.

Alternatively you can try to get it appraised with the effective date to the date of the original purchase and original putting in place as a rental (for depreciation recapture). Licensed appraisers routinely do retroactive appraisals.

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