The vacant land was acquired in a 1031 exchange in 2016 from a rental house I had for years and was fully depreciated. So both depreciation recapture and capital gains were deferred. I want to subdivide and sell 1 acre of the 9 acres. My Question is:
Will I owe taxes proportion to the amounts deferred? That is, part of the proceeds would be owed as the deferred depreciation recapture, part deferred capital gains and the balance return of capital (no tax). The amounts taxable being determined as the percent of the deferred depreciation to the purchase price, the deferred capital gains as a percent of the purchase price and the tax basis as a percent of purchase price.
Or would all of the proceeds from the sale of the 1 acre go towards depreciation recapture until the full deferred amount was reached and then any additional amount applied to deferred capital gains until that full amount is reached, etc. Or something different?
