Do I have to wait until I sell the rental property to add the recaptured depreciation to mu AGI, or can I do it when I convert the property to personal use to stop all depreciation at that time? I need to do some work on the house before I sell it.
JP
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when you sell.
when you sell.
Thank you.
But I can stop the deprecation after my last rental by converting to personal use, correct?
Utilities to maintain the property for selling, including the internet access that is required for remote control of the thermostat , and is required by my solar panel lease would be considered as "carrying cost", correct?
Thank you again.
@zz3bcn , to be sure that we are talking about same "recapture", let me just explain how this is supposed to work for rental property:
(a) Suppose you acquired a rental property for $100,000, with a land value of $25,000.
(b) this means that your basis in the property is $100,000 and depreciable basis is $75000 to be depreciated over the life of the property ( for US residential it 27.5 year ).
(c) This means that you take a deduction on your schedule-E ( against the gross income from rental ) approx $2700 per year. If this results in a loss on thew whole operation you take advantage of the loss ( upto passive activity limit of $25,000 for a couple ).
(d) Say now you rent out the property for 10 years , resulting in approx $27,000 of accumulated depreciation.
(e) If you now sell/dispose of the property ( not take just suspend the rental activity ) the property for $200,000 ----- 1. your adjusted basis in the property is Acquisition Basis LESS Accumulated Depreciation ( I am assuming no improvements ). 2. Your GAIN is Sales Proceeds ( that is sales price LESS sales costs including last minute repairs etc. required for sales, commissions, transfer taxes etc.; 3. Your Capital Gain is Gain LESS Accumulated Depreciation , and the accumulated depreciation is now subject depreciation re-capture i.e. taxed as ordinary income and not at capital rates.
(f) So if I assume that the sales expenses were $20,000 ---
Your Adjusted Basis is 100,000 less 27,000 = 73,000
Your Sales Proceeds is 200,000 less 20,000 = 180,000
Your Gain is 180,000 Less 73,000 = 107,000
Capital Gain is 107,000 less 27,000 = 80,000
Ordinary Gain is 27,000 ( recapture amount )
Is this what you are talking about or am I in left field ?
Does this make sense ?
I totally get it now - good explanation
But am I correct about my questions:
1 - By changing status from a rental property to personal use the depreciation stops (after last rental occurs)
2 - Utility expenses after that are considered "Carrying Cost" which can be added to the selling expense to reduce capital gains.
1 - By changing status from a rental property to personal use the depreciation stops (after last rental occurs)
Yes. You have to work through each individual asset to to that.
2 - Utility expenses after that are considered "Carrying Cost" which can be added to the selling expense to reduce capital gains.
Nope. Once you convert it to personal use, nothing after that date of conversion is deductible on SCH E. Absolutely nothing. The only deductions you can claim are all SCH A itemized deductions, and they are mortgage interest and property taxes. That's it.
If you sold the property shortly after the last tenant vacated, there's really no need to convert it back to a rental. Just leave it classified as a rental and report the sale in the SCH E section of the program.
Utility expenses after that are considered "Carrying Cost" which can be added to the selling expense to reduce capital gains.
Nope. Once you convert it to personal use, nothing after that date of conversion is deductible on SCH E.
-------
But I thought those "carrying cost" could at least be used as a "sales expense" which would increase the basis.
Will need to do more research on the topic of "Carrying cost.
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