Taxation of Unrecaptured Section 1250 Gains
Hello!
Set of facts:
- Lived in a residential unit as a primary residence for a number of years.
- Converted to rental and depreciated it for 2 years.
- Sold in 2023.
- Purchase price: $250k
- Sale price: $350k
- Depreciation: $9k => Roughly ( ($250k*.50)/27.5yrs) *2yrs)
- 2023 marginal bracket: 32%
What is the proper taxation?
My work shows that the $100k is a Section 121 exclusion and leaves $0 tax owed.
The $9k depreciation recapture is tricky. I've filled out the 1040 Schedule D Tax worksheet 3 times and each time have come back with it being taxed at the marginal rate of 32%, with no particular special treatment, based on the flow of that worksheet I don't see how it could be any other way.
I have read many, many, many, many, many threads on this forum mentioning the recapture being taxed up to 25%. Has tax law changed recently or am I not filling out a form correctly?