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rpunit
New Member

Depreciation being added both to capital gains and income ( depreciation recapture). Am I being double taxed

I sold my rental property last year. The property was bought in 2005 for 400k and sold in 2022 for 600.00. It has been rented for the last 6 years and the max depreciation allowed was 60k. I did my taxes using Turbo tax Premier. I got a huge tax bill. But what I noticed is that not only was the cost basis at 260k (200 + 60), the depreciation I took was added back to my income and taxed at 25%. I looked at some online forums and several articles on this topic and all of them say that if the depreciation recapture happens, the capital gains should be for 200k (not 260). Am I being double-taxed?

 

Thanks in advance. 

4 Replies

Depreciation being added both to capital gains and income ( depreciation recapture). Am I being double taxed

the tax is correct.  cost $400 less depreciation of $60 = tax basis $340 sold for $ $600 so gain is $260 of which the depreciation recapture of $60K is taxed at 25%. the remaining $200 is taxed at capital gain rates. or put another way your capital gain is $260 but the portion that represents depreciation recapture is tax at 25% and only the remaining capital gain of $200 is tax at capital gain rates. in addition, your investment income may be high enough, so you are subject to some net investment income tax (NIIT). see if there is form 8960 where it is computed. 

 

rpunit
New Member

Depreciation being added both to capital gains and income ( depreciation recapture). Am I being double taxed

Thank you for the answer. That was my understanding. Can you point me to the form/worksheet where the tax calculation actually happens?  I want to see how the final tax amount was calculated with breakdowns. 

Depreciation being added both to capital gains and income ( depreciation recapture). Am I being double taxed

@rpunit 

 

If you are using TurboTax (presumably), then look for the Schedule D Tax Worksheet.

Carl
Level 15

Depreciation being added both to capital gains and income ( depreciation recapture). Am I being double taxed

It is perfectly -possible that your recaptured depreciation was taxed at the capital gains tax rate, instead of the ordinary income tax rate. That will happen if you have more than one rental asset listed in the Sale of Assets/Depreciation section, and you did not show a gain on each individual asset when you sold the property.

When you sell at a gain, if you show a gain on the main rental property asset and a loss on any other listed assets, then the recaptured depreciation from those other assets is included in the capital gain and taxed accordingly.

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