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When I first entered the property for depreciation purposes, I used the appraised value at the time I inherited the property. The land value was very low. As of the date of sale, the land value increased 9x, but the home did not increase in value. (The property is located in a very good section of town, bungalows, where the land is fast becoming more valuable than the homes.) How would I enter this?

Just to clarify, are you talking about entries on the 4797? If so, all I can offer is my standard advice to anyone selling a rental. Hire someone to do the return. That's what I did, because I get totally confused by the process.

Maybe one of our stalwart pros will be along to guide you. If you're not talking about the 4797, please clarify.

Conceptually, it's simple. First determine your adjusted cost basis (total purchase price + improvements - depreciation). Subtract this from your sales price and you have your total gain. The depreciation portion of this gain is taxed at ordinary income rates with a maximum rate of 25%. The remainder of the gain is capital gain taxed at LTCG rates.

That's the theory. As to how to enter this on the forms... I hate to admit this but I let my software handle everything. Since I haven't had an invetment real estate sale in several years, I don't have completed forms readily available to refer to.

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