Decpreciation Recapture question

[Greg Martin]

Hey everyone,

This is probably a basic question, but I couldn't find an answer on here.  I came across a seller who wants to sell her property, but she thinks that she can't sell for some reason.  She said that a CPA a few years back did something for 27 yrs, that is preventing her from selling, even though she would like to.  

This sounds like depreciation to me, so I imagine that they are telling her she'd have to pay tax for the depreciation recapture.  Is there anyway to avoid or limit this depreciation recapture?  Would buying it on owner financing and spreading the pymt out over a number of years impact when the depreciation recapture would be owed or how much would actually be owed?

I don't know if any of this is helpful or impacts the situation.  She does not have a mortgage.  I think she inherited the house, and she has been living there off and on for a period of time, but she says it was only the last 8 months that she's lived there.

Would the use of any entities - land trust, LLC, etc help? For example, if the current owner transfers the property to a land trust, and then I buy the beneficial interest of the land trust, instead of the actual home.

I feel like there should be a way to help this lady get out of the property, but she was told that she CAN'T sell the house by her current CPA.  Thanks in advance!

[Daniel Dietz]

Hello All, 

I want to preface this by saying I am NOT an expert in 1031s by ANY means, but I always understand things better with examples, so I am going to try to do a ROUGH idea so those reading this get a clearer picture. Those of you who ARE experts PLEASE jump in if I am way off base :-)

I think what @Dave Foster is saying is this;

• Lets assume the house was worth 50K when she got it, with 40K that could be depreciated (land can't be)
• So she took 40K of depreciation over the 27.5 years to put her basis down to zero plus land. 
• Fast forward to today - let's say it is worth 200K
• If she sells on installments - land contract or what not, she CAN spread out her 150K of Capital Gain, but NOT her 'recapture'.
• BUT, her recapture would only be 25% of the original 40K that she depreciated or 10K. Pretty minimal with all things considered. 

Hope that makes it a little clearer. There might be some in there for capital improvements that were depreciated too, but that is the general idea.

Dan Dietz