Depreciation Recapture for Sale of Rental Home

2 Replies

I'm about to sell a house I bought for $290K in 2009 for $365K. We lived in it from 2009-2015, and have been renting it out the past 2 1/2 years - so we won't have to pay capital gains tax on the sale - since we pass the 2/5 year test and the $500K exclusion test. 

But I'm confused on whether we will have to pay taxes on depreciation recapture (about $25k during the past 2 1/2 years). Do I have to count that as income? Will it affect my 2018 adjusted gross income? 

Thanks for any help I can get!

Originally posted by @Joshua Brooks :

I'm about to sell a house I bought for $290K in 2009 for $365K. We lived in it from 2009-2015, and have been renting it out the past 2 1/2 years - so we won't have to pay capital gains tax on the sale - since we pass the 2/5 year test and the $500K exclusion test. 

But I'm confused on whether we will have to pay taxes on depreciation recapture (about $25k during the past 2 1/2 years). Do I have to count that as income? Will it affect my 2018 adjusted gross income? 

Thanks for any help I can get!

Hey Joshua, 

So there will definitely be depreciation recapture. As mentioned above it's a tax that's up to 25%.  The remainder of the gain will be excluded under section 121. 

Quick question- you mentioned the purchase price but not the value when it was converted to a rental- It should be the lower of the two used for depreciation purposes. I see a lot of returns where depreciation is calculated incorrectly - Just throwing that out there as it may help to have it reviewed prior to reporting in case there are any changes to depreciation that may save you money. 

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