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Returning Member
posted Mar 26, 2022 8:42:20 AM

Does State California collect 15 years of depreciation recapture when I only lived in California for 1 year?

I had a rental in Texas for 15 years. I lived in Texas for 14 years of the 15 years. I moved to California for a little over a year and then sold the rental property for a profit. I understand that federal recapture is applied for the 15 years at 25% tax rate. That makes sense because I for 15 years I enjoyed the break while the home did not depreciate. I also understand that I must pay capital gain tax on the profit, as well as state income tax on the profit.

 

What I do not understand is if CA requires that I pay depreciation recapture income tax on all 15 years where 14 of the years I did not even live in CA? I did not enjoy a tax break from CA during that 14 years so why must I pay a recapture to CA for years other than when I lived in CA and benefited from the depreciation on my state taxes. It seems I should owe CA just 1 year. 

 

I am surprised this is not a more common question as I have been unable to find this common scenario discussed. 

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1 Replies
Expert Alumni
Mar 26, 2022 8:56:56 AM

You pay tax in the year of sale to the state in which you live. You do not apportion amounts to events that happened before the year of sale. It is taxable to CA because you lived in CA when you sold.