@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 ?
