Real Estate Investor · Hopewell Jctn, NY · Member since 2010 · 2 posts · 1 vote
I was told by a CPA that my 15 year residential rental property will not be subject to 'recovery' since it was bot 2/08/84. It is fully depreciated. He said entire gain will be taxed at 15% cap gain rate. Is this correct? Having trouble finding it in the IRS pubs. Also, is it still considered Section 1250 property?
Developer · Biloxi, MS · Member since 2009 · 15 posts · 5 votes
15y
Bob, As a CPA myself I can assure you that your CPA is correct. It is still 1250 property,but your placing it in service when you did pre-dates the ACRS and MACRS provisions. He is exactly correct. Recapture upon sale evolved as a result of accelerated depreciation provisions introduced by TEFRA 1986. Sell it and pay your 15% in good conscience.
Developer · Biloxi, MS · Member since 2009 · 15 posts · 5 votes
15y
Bob, As a CPA myself I can assure you that your CPA is correct. It is still 1250 property,but your placing it in service when you did pre-dates the ACRS and MACRS provisions. He is exactly correct. Recapture upon sale evolved as a result of accelerated depreciation provisions introduced by TEFRA 1986. Sell it and pay your 15% in good conscience.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
15y
Originally posted by Bryan Hancock:
Or do a 1031 exchange and save the 15%. What does paying taxes to our bloated gov-mint have to do with good conscience?
Bryan - I'm pretty sure that Tim meant that Bob could pay his 15% capital gains tax with a good conscience that he was correctly reporting the transaction. Don't read into his statement something that isn't there :-)
Real Estate Investor · Hopewell Jctn, NY · Member since 2010 · 2 posts · 1 vote
15y
I want to thank Tim, Bryan, and Bill for their responses. I have and still am considering a 1031, since I will be paying about $30K to Fed and NY ---- it makes me wince!
PS --- I meant to say 'recapture', not recovery.
Again, thanks to all of you.
Regards, Bob T.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
15y
Bob,
Let's clarify what you are being told. Depreciation taken (or which could have been taken) since May 1997 is taxable as unrecaptured depreciation when you sell the property.
If you fully depreciated the property before May 1997, then all your feedback is correct -- your depreciation is an adjustment to your cost basis and is included in your taxable capital gain when you sell the property.
Otherwise, if you were still depreciating the property in 1997 and later, then all allowable depreciation (even if not taken) since May 1997 is subject to the 25% unrecaptured depreciation tax.
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Bob, I agree with Tim your property is not subject to depreciation recapture. You may still want to consider a 1031 exchange if you will be purchasing another property.