Let's say you added a refrigerator at a value of 2,500 three years ago.
(basis 2,500, deprecation taken 1,500)
You sold the rental for 200,000 and the land was valued at 20,000
That leaves you with 180,000 to allocate.
You can allocate 1,000 towards the refrigerator to zero it out, or 1,001 to show a profit as Carl suggests.
If there are no other assets, that would leave 179,000 to go towards the building (or 178,999 if using Carl's advice)
WHY?
Lets say you bought the rental for 150,000 eight years ago and started depreciating it over 27.5 years.
Then five years later you add a refrigerator costing 2,500.
You can't add 2,500 to the building because the building has depreciated 5 of it's 27.5 years, while the refrigerator will depreciate over the next 5 years.
Then, 3 years later you sell everything. Well, now you need to take the proceeds from the sale and allocate that between the assets and land.
Finally, the depreciation you've been deducting year after year is recaptured.
The depreciation is taxed as income.
The gain is taxed as capital gains.
The main reason you need to split the sale between the assets is that the assets needed to be listed separately in order to be depreciated over their individual life-span and from the date they were placed into service. And land is never depreciated, so that had to be listed separately from the other assets.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
