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Depreciation Recapture Situation
Posted on 7/20/15 at 12:51 pm
Posted on 7/20/15 at 12:51 pm
Purchased a property in 2008 as primary residence for 155k. Converted to rental property in 2014 in order to wait until property values rebounded. Claimed the depreciation for the 6 months of 2014 that it was used as rental property. Got a call from our realtor friend that says property values have soared in the neighborhood over the past 4-6 months, and I've got the comps to show it. I'd love to sell it, but even now, at best we'd get the original purchase price, not realizing a gain. Does that even matter when calculating depreciation recapture? What do I need to know here...?
Thanks in advance-
Thanks in advance-
1
Posted on 7/20/15 at 3:22 pm to AUjim
Simple explanation - it's a bit more complex in reality, but this should help.
The depreciation you took lowers your basis in the property.
If you have a gain, then the portion of gain attributable to depreciation is taxed at ordinary rates, capped at 25 percent.
So let's say your basis is 155K less depreciation. Now let's say you sell it for 155K, after fees. Your gain is limited to depreciation, which is taxed at 25 percent.
As a simple rule, if you don't have a gain, you don't have real property depreciation recapture. (Note, this is for real property, the rules for non-real property are very different).
The depreciation you took lowers your basis in the property.
If you have a gain, then the portion of gain attributable to depreciation is taxed at ordinary rates, capped at 25 percent.
So let's say your basis is 155K less depreciation. Now let's say you sell it for 155K, after fees. Your gain is limited to depreciation, which is taxed at 25 percent.
As a simple rule, if you don't have a gain, you don't have real property depreciation recapture. (Note, this is for real property, the rules for non-real property are very different).
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