depreciation recapture:

Investor · Fredericksburg, VA · Member since 2016 · 2 posts · 0 votes

My question is:

If I lived in my 2 family rental property for 2 years out of the 10 years i owned it, do I still owe depreciation recapture taxes.

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Steven Hamilton IIPro Member

Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes

10y

Originally posted by @Jackie Jerndal:

yes i did sell it and my accountant sais i owe all ten years of depreciation tax at 18Kper year at 25% plus my capital gain at 15%

You pay UP TO 25% on the recapture up to your original basis. On the amount over your original basis you will pay capital gains.

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10y
@Brandon Hall would know for sure, but I believe you will have some.
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Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
10y
@Russell Brazil thank you for tagging me.
@Jackie Jerndal you will only owe depreciation capture when you sell the property. Whether or not you were selling wasn't clear in your question.
You will owe Sec 1250 recapture on depreciation allowed or allowable. This means that if you've failed to report depreciation over the years, the IRS will impute it for you and still force you to pay recapture taxes even though you never benefited. There are ways to fix this, but you must speak with a CPA.
The second issue is that you presumably lived in one side of the rental for two years. This adds to the complexity a bit, so best to sit down with a professional before engaging in a transaction.
In a nutshell, yes you should expect to owe depreciation recapture.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
Yes, you would owe it on the side that was a rental And if both sides were a rented you will have additional issues for recapture. Assuming you last occupied it beyond 5 years ago, you will not have any exclusion.
If you began to occupy it AFTER it was a rental the gain for THAT SIDE must be prorated based upon the number of years it was a rental vs primary residence. The 100% rental side will be subject to recapture and possibly capital gain treatment.

I agree with @Brandon Hall that it is best to sit down with someone that specializes in Real Estate Investment like him or myself. If you need recommendations or a referral please feel free to ask.
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Jackie Jerndal
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Investor · Fredericksburg, VA · Member since 2016 · 2 posts · 0 votes
10y
yes i did sell it and my accountant sais i owe all ten years of depreciation tax at 18Kper year at 25% plus my capital gain at 15%
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
10y
Originally posted by @Jackie Jerndal:

My question is:
If I lived in my 2 family rental property for 2 years out of the 10 years i owned it, do I still owe depreciation recapture taxes.
Jackie, if you lived in this in two of the last five years, you may have some relief from the capital gains. But the depreciation recapture is unavoidable.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
Originally posted by @Jackie Jerndal:

yes i did sell it and my accountant sais i owe all ten years of depreciation tax at 18Kper year at 25% plus my capital gain at 15%
You pay UP TO 25% on the recapture up to your original basis. On the amount over your original basis you will pay capital gains.
[email protected]224-381-2660
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