pk
Level 15
Level 15

Investors & landlords

@zz3bcn , to be sure that we are talking about same "recapture", let me just explain how this is supposed to work for  rental property:

(a)  Suppose you acquired a rental property for $100,000, with a land value of $25,000.

(b) this means that your basis in the property is  $100,000 and depreciable basis is $75000 to be depreciated over the life of the property ( for US residential it 27.5 year ).

(c) This means  that you take a deduction on your schedule-E ( against the  gross income from rental ) approx $2700 per year.  If this results in a loss on thew whole operation you take advantage of the loss ( upto  passive activity limit of $25,000 for a couple ).

(d) Say now you rent out the property for  10 years , resulting in   approx  $27,000 of accumulated depreciation.

(e) If you now sell/dispose of the property ( not take  just suspend the rental activity ) the property for  $200,000 -----  1.    your  adjusted basis in the property is  Acquisition Basis  LESS Accumulated Depreciation ( I am assuming no improvements ).  2. Your GAIN is  Sales Proceeds  ( that is sales price LESS sales costs including last minute  repairs etc. required for sales, commissions, transfer taxes etc.;  3.  Your Capital Gain is  Gain LESS Accumulated Depreciation , and the accumulated  depreciation is now subject  depreciation re-capture i.e. taxed as ordinary income and not at capital rates.

(f)  So if I assume that the sales expenses  were $20,000 --- 

                Your Adjusted Basis is  100,000 less 27,000 = 73,000

                Your Sales Proceeds  is 200,000 less 20,000 = 180,000

                 Your Gain is 180,000 Less 73,000 =  107,000

                Capital Gain is 107,000 less  27,000 =  80,000

                Ordinary Gain  is 27,000  ( recapture amount )

 

Is this what you are talking about  or am I in left field ?

Does this make sense ?