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New Member

Sale of rental property

I have a rental property that has been in service since 2013. I had bought the property in 2003 for 180K and at the time of putting it into service, it had lost value and the local county's assessment valued it at around 150K (land value 55K + building value 95K).  I used 95K as the basis for depreciation. Was that the right thing to do or should I have used 180K - 55K =  125K?  I have been depreciating it over a useful life of 27.5 years with an annual depreciation amount of $3440. 


Secondly, the property has now appreciated to approximately 250K and I would like to sell it. My understanding is that in addition to capital gains, I will have to pay depreciation recapture taxes as well. In this case, what is the capital gain?  Is it (250K - 180K = 70K) or (250K - 150K = 100K)? 


Finally, how much would I end up paying for the depreciation recapture?  Is it 25% of all the depreciation I have taken up to this point?  Or should it be based on a larger depreciation due to a larger basis?

3 Replies
Level 5

Sale of rental property

You used the right number of 95k the fair market value on the date of conversion. 250k - 180k = 70k is right because you paid 180k for the rental. 25% is the maximum depreciation recapture could pay a lower rate if your total income is lower.

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New Member

Sale of rental property

Thanks halpalms for the response. So does that mean I don’t need to file any amendment to my tax returns to adjust the basis and depreciation amounts? I have read in some online articles that the IRS assumes you to took the full depreciation possible and this will tax you (in case of recapture) for the same amount.
Level 5

Sale of rental property

You have to reduce your basis by the amount of depreciation that you deducted or should have deducted over the years the property was in use as a rental.....that amount is unrecaptured section 1250 gain.

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