It may best be explained by example” you bought the property for $100K and sold it for $98K, an apparent $2000 capital loss. But during the time you owned it, you claimed (or should have claimed) $20K in depreciation expense deduction on Schedule E.
Instead of a $2K loss, you will show an $18K gain on your tax return (100K -98K + 20K = 18K). Depreciation recapture is taxed at ordinary income rates, not long term capital gains rates, but at not more than 25%.
Whether you have a gain or loss when you sell your rental property is determined by the Original Cost, minus the amount of Depreciation you have taken on the property (Cost Basis) and the Sales Price.
Don't forget to include any Sales Expenses you paid, and add any Capital Improvements you made to the Cost Basis of the property
Here's how to enter the Sale of Rental Property:
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Still have questions?Make a post