Rental sold in 12/2020. Is the loan payoff amount considered an expense to determine gain or loss on the sale?

[DavidD66]

No, the loan payoff is not an expense when determining gain or loss on sale.  The mortgage interest paid was deductible as a rental expense while it was rental, but other than that the loan, principal payments, and the payoff considered expenses used to determine gain or loss.  

[Rivace20]

The loan payoff is not an expense in the sale of the rental property is your answer. However, in the second sentence you indicate the interest is a write-off

[Rivace20]

In the second sentence of your response, you state the interest is deductible while it is a rental, however, you state the principal, payment, etc., is to be considered in determining the gain or loss??  Confused

[JoannaB2]

No. The loan payoff amount is not a factor to determine a gain or loss of an investment property,  To calculate your gain, subtract the adjusted basis of your property at the time of sale from the sales price your rental property sold for, including sales expenses such as legal fees and sales commissions paid, and any depreciation recapture.  

Your adjusted basis is generally your cost in acquiring your home plus the cost of any capital improvements you made, less casualty loss amounts and other decreases. 

Depreciation recapture applies to the portion of the gain attributable to the depreciation deductions you’ve already taken. For example, your adjusted cost basis in the property after 10 years is $135,870 (the original cost basis of $210,000 less the $74,130 depreciation). If you sell for $300,000, you’ll recognize a gain of $164,130 ($300,000 minus $135,870).