A little rusty but.....Purchased a house in 2008. Moved out in 2012 but wanted to keep the house so I converted to rental property. Sold house in 2020
My annual depreciation for purchase price is $175,000/27.5 = $6,363
Adjusted cost basis is $175,000 - ($6,363x8) = $124,096
Realized gain is $175,000 - $124,096 = $50,904
Unrecaptured gain is $6,363 x 8 = $50,904
Capital gain is $50,904 - ($6,363x8) = $0
My question: Is it the unrecaptured gain that is being taxed?
Not quite. I didn't do the actual math but your capital gain is the sales price minus the purchase price exclusive of the depreciation. The depreciation is the unrecaptured gain is taxed as ordinary income. Page 2 of Form 4797 shows this calculation.
20 Gross sales price ??????
21 Cost or other basis plus expense of sale 175000
22 Depreciation (or depletion) allowed or allowable 124906
23 Adjusted basis. Subtract line 22 from line 21 50094
24 Total gain. Subtract line 23 from line 20 .
I'm sorry, I neglected to say that I never made a profit off of the sale. I purchased for $175,000 and sold for $175,000. Do you have to make a profit to be taxed on depreciation recapture? I had found an example that said you didn't if you sold at a loss, but was wondering about neither profit nor loss. Kind of a wash situation.
No, you have to make a profit to have the capital gain. You always pay tax on the recaptured depreciation.
I think the other response is misleading.
I haven't gone through to verify the depreciation figure you provided is accurate.
Based on your facts, you DO have a gain.
Since this is real property, the gain is subject to Section 1250 recapture.
So to answer your question, YES, all your gain is subject to the 1250 recapture based on your facts.
You should see this being calculated on the Schedule D worksheets.