Fully depreciated assets, cost basis, and sold rental properties?
I have a question on how to handle fully depreciated assets that are part of a rental property when it is sold. I'm trying to estimate my taxes owed (long term capital gains and income) due to the sale. I think this will be easiest with an example:
Suppose I have a rental house that I bought for $125,000, with $100,000 being depreciated and $25,000 being land. I then buy a refrigerator for $1,000 during year 2 of ownership, and that refrigerator qualified for 100% bonus depreciation that year. I sell the house after 5 years of ownership for $150,000. I know that I need to recapture my depreciation on the $100,000 ($3,636 * 5 = $18,180) as regular income. Do I also need to recapture the $1,000 of depreciation for my refrigerator as regular income? And, is my cost basis $125,000 or $126,000 (or something else) when calculating my capital gain?
It seems like an asset past its "useful life" and fully depreciated should be treated as an expense at that point. The bonus depreciation thing complicates things - my new refrigerator that qualified for bonus depreciation isn't *actually* past its useful life at year 1. But, if I do hold a house long enough, I could easily have purchased and fully depreciated multiple refrigerators - would I need to recapture all of them when I sell the house?
Thanks in advance.