Calculate rental property sale gain and depreciation recapture

Quick answer: Based on the general basis and gain rules in the documents, your rough gain is sale price minus selling expenses minus adjusted basis (purchase price + improvements, minus any depreciation you claimed while renting it). I can't give you an exact number because the documents you've provided don't include your selling expenses or depreciation deductions taken in 2024–2025, both of which change the answer — and this office can't compute your exact tax anyway.

What the documents support

To figure gain on a home sale, IRS Publication 523 has you work through two totals: your "amount realized" and your "total basis." You figure your "amount realized" as sale price minus selling expenses.¹ Selling expenses include any legal fees, any mortgage points or other loan charges you paid that would normally have been the buyer's responsibility, and any other fees or costs to sell your home, added together.²

For basis, Publication 523 explains that your "total basis" is the total amount you invested in your home, including what you paid for your home as well as other money you may have spent that added to its value.³ That starts with the amount you paid for your home, including any down payment and any amount you borrowed to pay for the home,⁴ plus any amounts you spent on construction or other improvements that are still part of your home at the time of sale (not including costs of maintenance and repairs).⁵ On your facts, that would mean $280,000 purchase price plus your $30,000 in improvements — assuming those improvements were capital improvements and not routine repairs — for a starting basis of $310,000.

Why I can't finish the calculation for you

1. Depreciation reduces your basis. Because you rented this property, if you claimed (or were entitled to claim) depreciation on it, that depreciation reduces your basis and is generally recaptured as gain on sale. None of the documents you supplied give me your depreciation schedule or method for this specific property (the MACRS and car-depreciation examples in your documents are illustrative of the mechanics generally, not your figures), so I cannot compute the depreciation adjustment or recapture amount.

2. Selling expenses aren't given. You haven't listed commissions, legal fees, or other selling costs, which reduce your amount realized.

3. The $5,000 rental income is separate. Rental income you collected is reported as ordinary rental income on Schedule E in the year received — it is not part of the capital gain calculation on the sale itself. Publication 527's example illustrates how rental income and expenses are tracked separately from the property's basis calculation.

4. This was not your main home. Because you describe it as a "2nd house" used as a rental, the personal-residence gain exclusion under IRC § 121 likely doesn't apply — that exclusion is for a primary residence. Nothing in your documents suggests you lived in it, so plan on this being a taxable transaction (with any depreciation recapture taxed as ordinary income up to 25%, per general Section 1250 principles referenced in Publication 544, though the specific recapture computation depends on your depreciation records).

What it depends on

• Total depreciation actually allowed or allowable while it was a rental
• Any selling costs (commissions, closing costs, legal fees)
• Whether the $30,000 in improvements were capital improvements (added to basis) versus repairs (not added to basis)
• Whether you ever used the home personally in a way that could implicate other rules

Given the depreciation recapture and basis complexities here, this is a good case to have a CPA prepare the actual Form 4797/Schedule D computation with your full records.