Hello Community - I am trying to get the concept of depreciation recapture to sink in my brain as it feels that one overpays what he/she needs to pay in taxes. My question is, why does accumulated depreciation reduce the cost basis at the time of house sale? As the example below:
Cost basis: $100k
Accum. Depreciation: $30k
Adj Cost Basis: $70k
Sale Price: $150k
LT gain: $80k - TO BE TAXED AT LT GAIN TAX RATES
PLUS
Accum Depreciation of $30k - TO BE TAXED AT UP TO 25% TAX RATE
It seems as if it is essentially a double taxation. What would make sense is to keep cost basis at $100k and get LT gain of $50k (pay tax on this LT gain) and pay tax "back" on $30k (accum depreciation)? Essentially:
LT gain: $50k - Pay tax on at LT gain tax rates
Accum Dep: $30k - Pay tax on at up to 25% tax rate
Essentially I am seeing extra $30k in LT gains because of depreciation recapucture but why?
