What I really want to know, is, do I need to file the depreciation recapture tax with loss for sale the rental property ?

[orkneyis]

Rental Property sold at a LOSS. Do I need to Depreciation recapture the assets on sale of rental property for LOSS? What I really want to know,is,  do I still need to file the Depreciation recapture tax ?

[wrojas0]

A twist, if I may ...
If the property was refinanced, what amount is used to determine the adjusted basis for the loss/gain calculation at the sale?
I refinanced a number of years back to lower the rate, at the time I took at loss rather than foreclosing -I actually had to pay out of pocket to pay off the difference between the balance on the original mortgage and the new refinanced mortgage?
say bought for $105,000, then when $88,000 was still owed, I refinanced for $46,000 and paid $42,000 to cover the loss in value on the property.

I now sold for $66,000.  Also ended up taking $94,500 in depreciation - using original price depreciation calculation for lifetime of ownership.

So is it a $39,000 loss ($105,000 - $66,000) plus my depreciated total?
Or a $20,000 gain ($66,000 - $46,000) plus my depreciated total?
And what about the $42,000 pay down for the refinance?

Thank you?

[TaxGuyBill]

@wrojas0   The mortgage or refinance have nothing to do with the gain or loss.  If it was always a rental property, you use the purchase price (PLUS cost of improvements).

Because depreciation lowers your Basis (cost), your basis looks like it is about $10,500 ($105,000 minus $94,500), not including improvements.  That would give you a gain of $55,500 ($66,000 minus $10,500).  All of that would be Unrecaptured Section 1250 gain, and is taxed at your regular tax rate, up to 25% (plus any State taxes).

[TaxGuyBill · Accepted solution]

If it is truly sold at a loss, NO, there is no tax.

However, some people misunderstand what "loss" means for tax purposes, and don't realize that depreciation lowers your "basis".

For example, let's say you bought the property for $100,000 and were able to take $10,000 of depreciation.  The depreciation lowers your "basis" to $90,000.  So if you sold it for $95,000, you actually have a GAIN, despite that it sold for less than you originally paid for it.

[Critter]

"Do I still need to file the Depreciation recapture?"  

Yes you do even if you truely have a loss ... the program will walk you thru the steps.

[TaxGuyBill]

You need to FILE the information about the sale, but there will NOT be any tax from the sale.

[SweetieJean]

And any mortgage payoff is irrelevant in calculating gain or loss.