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Depreciating Asset "sale" when sell rental property
If you "sell" each of the non land/building assets(such as fence, roof) for a gain as was the entire property sale (more than cost) I don't see how you benefit ie. recovering the cost that you paid for the fence roof etc
Ex= 27.5 k for new roof depreciated over 27.5 yrs, got 5 yrs into so 5k was depreciated and then sell the rental property - is the remaining 22.5 k is then added to the "cost basis of the building" or a "selling expense" or what so that I benefit from the cost of installing a new roof.
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Depreciating Asset "sale" when sell rental property
Improvements (such as a new roof) are added to your cost basis while depreciation deductions (which were taken or should have been taken) reduce your cost basis.
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Depreciating Asset "sale" when sell rental property
Depreciation MUST be taken and recaptured as ordinary income when you sell which reduces the capital gains on the return.
Simple example :
Purchase price + cost to purchase = cost basis
cost basis - depreciation taken = adjusted cost basis
sale price - adjusted cost basis + cost of sale = profit or loss
Profit - depreciation recaptured as ordinary income (form 4797) = capital gain or loss (Sch D)
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Depreciating Asset "sale" when sell rental property
So what do I do with the $22.5k balance in the roof example ?
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Depreciating Asset "sale" when sell rental property
That should have been listed as an asset which must be sold off with the rest of the assets ... so you prorate the sales price & expenses of sale.
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Depreciating Asset "sale" when sell rental property
So for the remaining 22.5k roof asset i will
1>sell roof for 22.5k for a 0 gain
2>no expense of selling, keep selling expenses all on building
3>add 22.5k to cost basis
4> assume Form 4797 gets the recaptured depreciation of 5k
Is this an acceptable approach, or are there errors?
Thanks
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