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Question
How does IRS handle the sale of a home (Capital Gains Tax) when one of the rooms is rented to our business.?
We have our own business and use 10% of the house as a rental to the business. We will be moving to another state next year and wondered about how this will affect our tax return since I had heard at one time that you would have to declare something on the gain in the sale process because of the business rental tax deduction we've been getting.
4 months ago - 1 answers
Best Answer
Chosen by Asker
Your business tax return has been getting a rental tax deduction, but you have at the same time been reporting rental income on Schedule E on your personal tax return. Anyway, when you sell your home, the property is 90% your principal residence and 10% business property. You treat the sale as the sale of two different properties. The tax due on the gain from the sale of the business property (the 10% part) is not because of the rent deduction. The tax results from depreciation as well as capital gains. If you sell at a gain, you will have taxes to pay on the business property. Your gain up to the amount of depreciation allowed is taxed at a maximum rate of 25%. The remaining gain is taxed at a maximum rate of 15%. You do not receive an exemption because it is attached to or part of your principal residence. The principal residence (the 90% part) qualifies for the exemption from capital gains tax, assuming your have owned and lived in the home for two years. The exemption is $500,000 for a married couple. Gains over that amount are taxed as capital gains. This is a return you want done professionally.
by ninasgramma
4 months ago
Asker's Rating: 