Hello,
I sold a rental property in 2022 for a gain. I can't figure out why TurboTax is classifying a portion of the depreciation recapture as long term capital gain. Here is a detailed description of what is happening.
When I put the property into service as a rental, I listed the values of the original structure and land. Then I listed out all the individual improvements I had made and the amounts I had paid for them. Over the course of a couple years, I took depreciation on the original structure and the improvements. Now when I'm selling, I have gone into the program and listed the sale price of each individual improvement to be equal to the undepreciated price I originally paid for the improvement. This ensures that the program is recapturing all the depreciation I took on each individual improvement as ordinary income.
The issue I'm having is the depreciation I took on the original structure, which is classified as "residential rental" under type of asset (I believe this was the default for the original structure and land when I allocated values to those items upon putting the property into service as a rental). When I look at form 4797, it is listing the depreciation on the original structure as a long term capital gain, which it then sends over to Schedule D, Line 11 for purposes of calculating capital gains tax.
My understanding is that all depreciation recapture is supposed to be taxed as ordinary income. Is the program correct in instead classifying the depreciation on the original structure as a long term capital gain? Or have I accidentally put something in wrong?
Thanks!
