Do I have to pay depreciation recapture tax on a section 1250 rental property I owned for 7yrs (sold for a loss)? I took straight line depreciation for the entire 7yrs.

[Coleen3]

Yes. You always have to recapture depreciation.

[robjmcclellan]

I read on a couple tax websites including IRS that if you take straight line depreciation on a section 1250 property and take a loss, you dont have to pay depreciation recapture tax.
Trying to confirm or clarify. Are there any circumstances where you don't pay recapture depreciation tax??
Thanks

[Coleen3]

MACRS is straight line for rental property. Depreciation reduces your basis and must be taken into consideration. It depends what you mean by a loss. If you bought for $325k and sold for $300k, then it seems like a loss because the depreciation has not been taken into account. Since depreciation lowers your basis, if you had taken $35,000 in depreciation, your basis is now $290k and you have a $10,000 gain.

When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Any remaining gain is a section 1231 gain.
 <a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p544">https://www.irs.gov/publications/p544</a>

[robjmcclellan]

If i took a loss (taking into consideration depreciation), do you still pay depreciation recapture tax?

[Coleen3]

If your loss encompassed the depreciation, then no. Following the example above, You bought for $325k, sold for $300k and only had $10k depreciation, basis would be $310k and you would have a definite loss.