How does IRS handle the sale of a home (Capital Gains Tax) when one of the rooms is rented to our business.?

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.

Assuming that the authorities is picking up the tab on your mom's nursing living house care through Medicare and/or Medicaid, you've a miles extra urgent difficulty than taxes! Your mom transferred an asset interior 5 years of utilizing for help to conceal the fee of nursing living house care. She (or her dad or mum, i.e. YOU) ought to record this living house on her record of sources than will be utilized to pay for her care now that that's now not her position of abode. DHHS has an fairly good nostril for this kind of fraud. at the same time as they suss it out, they're going to come once you for the proceeds from the sale of the living house. in case you do not turn it over to them, she will be in a position to be denied further care at public cost and also you could ought to p.c.. up the tab your self in case you prefer to keep her interior the nursing living house. effectively your "tax" burden for this reason is 100%. in case you do not have self belief me -- and that i will wager dinner that you do not -- search for advice from from an lawyer who makes a speciality of elderly affairs. they're going to clarify this chilly demanding actuality of life to you.