Sold a rental house in 2016 originally purchased in 1979. Does depreciation recapture start from May 6, 1997?

[adezoysa]

Purchased a rental house in 1979 for 100k and is fully depreciated.  The depreciation was 100k / 27.5 years = 3.636K

so does the recapture of depreciation start from 1979 or 5/6/1997?

if it's from 1997, is it correct to state 9 years of recapture (1997 till 2016) = 32k?

Thanks

[Coleen3 · Accepted solution]

Unfortunately, just because the depreciation method was different prior to this date, does not mean it's disqualified. Your property is probably fully depreciated. You would have to look back for the method you started with in 1979, before there was such a thing as accelerated depreciation. 27.5 years is the life under MACRS. Your property has passed through three eras of depreciation; Depreciation, ACRS and MACRS. Each type had its own rules but did not nullify the previous depreciation taken.

Straight Line Method

Before 1981, you could use any reasonable method for every kind of depreciable property. One of these methods was the straight line method. This method was also used for intangible property. It lets you deduct the same amount of depreciation each year.

To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Subtract the salvage value, if any, from the adjusted basis. The balance is the total amount of depreciation you can take over the useful life of the property.

Divide the balance by the number of years remaining in the useful life. This gives you the amount of your yearly depreciation deduction. Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use.:

The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria. Since 1986, the Modified Accelerated Cost Recovery System (MACRS) has been far more prevalent.

Following the Economic Recovery Tax Act of 1981, the IRS implemented ACRS for assets purchased between 1980 and 1986.

http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/accelerated-cost-r...

[view2]

Your depreciation is an adjustment to your cost basis which you stated is fully depreciated so you have a cost base of zero.

You placed it in service when you did pre-dates the ACRS and MACRS provisions.

Your gain will be taxed at 15% long term capital rates.

LOL failed to refresh

[DaveC1]

Someone told me that Depreciation Recapture would be treated as a Long Term Capital Gain if you owned the Rental Property for more than 20 years.  Is there any truth to this suggestion?  Thanks, Dave

[AmeliesUncle]

@DaveC1  No.  It is still taxed at your ordinary rate, up to 25%.

[Carl]

I assume you are working on your 2016 tax return. With the exception of carry over losses if you sold the property at a loss, nothing concerning this would be reported on a 2017, 18 or 2019 tax return.

Your cost basis on the sale is the cost (what you paid) for the land, and that's it. The structure has been fully depreciated without a doubt. So your cost basis on the structure is zero.

Now if you did any property improvements *AFTER* tax year 1989 then it's highly probable those assets were not fully depreciated by the tax year you sold it, which was 2016 as I understand it.