But you did not sell the home for $12,000. Rent credits are not dollars.
You could just as easily substitute grains of sand for rent credits. “If you rent this home and pay me the rent, every month you pay on time I will put 200 grains of sand in this jar. When the jar has 12,000 grains of sand in it I will sign the title of the home over to you.”
Nutty example, but if you think it through I think you can see that a rent credit has no value. It is pretty much the same as saying “If you pay your rent on time 120 times I will give you title to this home, or another home of equal value.” You need some way of keeping track of that. It could be grains of sand in jar. Or it could be numbers on a spread sheet we call “rent credits.” Whatever you use to keep track of it, it is not dollars.
As for you basis
The fact of the matter is you did not sell the home. You disposed of it for $0.00. I say that because you did not receive any monetary value for it. You received rent, but nothing to replace the capital you have in the home.
So where does that leave you in your example at the end of the rent credit term?
It would look like this:
- Purchase Price (original basis): $10,000
- Deprecation: $2,180
- Basis at time of disposal: $7,820
- Sales Price: $0.00
- Capital Loss: $7,820
So you would take a $7,820 capital loss on your taxes.
Here is another way of looking at it — So your tenant/buyer paid you 12,000 rent credits for the home; can you then take those rent credits and deposit them in you bank account? NO! Rent credits are not dollars. He paid in fairy dust.