What will be the capital gains tax after we sell a rental home?

Question

I'm in desperate need of some help. I've been asking different tax consultants about this situation, and I keep receiving different answers.

My parents purchase a Tudor style home about 30 years ago in Denver Colorado. About 8 years ago, my dad refinanced the home and used the money as a down payment on his current home. He was not able to sell his home at the time, and shortly after, the economy went to pieces. Its been about 9 years, and we decided to put the house on the market.

He purchased the home for about $54k, we have received an offer of $355k. He currently owes about $170k. In the time that he lived there, he did a lot of work to the home on his own, but doesn't have copies of the receipts. The house is currently under both my mom and dad's name.

Can you please help me guesstimate what he will end up paying in capital gains taxes? I believe between he and my mother (who works part time), they earn about $110k a year.

Answer 1

This will be a complex issue and you will need to sit down with a professional to work through the issues:

When the house was put up for rent the initial year tax forms should have required that the value of the house/property be calculated. This number was then used for depreciation of the house. This was made more complex based on any capital improvements. If the house wasn't the first he owned, then capital gains might have been rolled over from previous houses which adds a layer of complexity.

Any capital improvements while the house was a rental will also have to be resolved because those were also depreciated since they were placed in service.

The deprecation will be recaptured and will be a part of the calculation.

You have nowhere near enough info to make a calculation at this time.