Sale of rental house

[geekgirldany]

Adjusted Basis of Rental House 115,706. Customer is selling for 215,000. So about a 99,000 profit. Client asked me if buyer assumed the loan on the house (100,000) would this save him money on taxes. Can this be done or would the assumption of the loan still be looked at as income to my customer? He would just be getting $115,000 instead $215,000.

Thank you for any help

[OldJack]

It makes no difference in the end result as the sale amount is still $215,000. Look at it as though the buyer bought it at 215,000 by paying off the loan and giving the balance due to the seller. This is what is done with residential sales all the time as the mortgage is paid off by the agent doing the closing on the property sold with the net left over given to the seller.

[Bird Legs]

Geek Girl

If the buyer assumes the mortgage on the property, this would be income to the seller in
the form of debt relief.
There is no difference between that and if the buyer paid the full amount in cash and
the seller then turns around and pays off the $100,000. mortgage.

[geekgirldany]

Thank you both for responding. I remember seeing this is residential sales where mortgages/loans are paid off. I thought it would still be income to him but I just want to double check. The way a customer words things makes me think I might be wrong. I'm glad I have this forum to double check.

Thank you again.

[geekgirldany]

Unrecapture 1250 Gain

Another question that I will not make a new thread about. But does the Unrecatured 1250 Gain only apply to installment sales and/or where the residence was used as part principal residence and rental? To my understanding this makes it subject to two different captial gain rates. I'm just curious.

[OldJack]

Unrecaptured 1250 Gain is not recapture of depreciation and has nothing to do with installment sales as such. It simply put is the amount of "gain" on real estate upto the depreciation taken that is subject to the max capital gains rate of 25% rather than the max 15%, 5%, etc. Therefore the sale of the asset gain is still added to regular income tax calculation but the unrecaptured 1250 gain (Real Estate Depreciation Gain) does not pay a tax rate greater than 25%. The amount is entered on Sch-D only to calculate the capital gains tax.

[abby]

a little something...

When I use the software interview sheet to report a sale of primary residence with taxable depreciation, it does flow to 4797 before transferring to sched D

[geekgirldany]

thanks so much Old Jack. I got a little confused when looking up the capital gain rates. I saw this and just wondered exactly what it means.