I found a seller who may want to sell my their rental property. They bought it 11 years ago for 87k and I want to buy it for 75k. Will the seller have any tax benefits from this sale? TIA
First, it may not be at a loss. The seller’s basis is purchase price plus significant improvements less depreciation. 11 years of depreciation (if it was a rental the entire time) may push the basis down enough to be less than the proceeds.
Second, yes. Capital losses offset capital gains, and once capital gains are eliminated up to $3k of capital losses may be deducted per year against ordinary income.
If the seller held it as a rental property for 11 years - the seller would calculate gain as selling price less adjusted basis. Adjusted basis is original purchase price plus improvements less depreciation.
Assuming the seller allocated approximately 20% of the price to land and 80% towards the building - his adjusted basis is approximately
87,000 - 28,000(depreciation) = 59,000
Gain would approximately be
$75,000 - 59,000 = 16,000(capped at a maximum federal rate of 25%)
If the property is located in Arizona - the seller may also have to pay a state income tax which ranges from 2.59% - 4.54%.
Basit Siddiqi, CPA
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