Here are the numbers on a contract sale of my rental home:
original purchase price - $70,604
recapture/depreciation - $50,454 (ouch at 25% tax)
possible sale price used in my discussion - $175,000
down payment of $20,000
five year balloon ~ $119,000
Principle payments in the 5 years ~$36,000
That means that during the five years the buyer has paid off a little over $36,000, or $56,000 with payments plus down payment.
My question is - what number do I use for determination of my (possible) capital gains tax in the 5th year (in addition to the mortgage payments that same year)? Is it:
$175,000-$70,604 = $104,396, which ignores the spreading out during the interim 5 years, or
$119,000, which seems most likely, or
$119,000 - $70,604 = $48,400, idunno, I'm just wondering on this one?
I'm seeing a CPA next week, but looking to draft the final sales contract this week and the answer earlier would be helpful.
Thank you.
