recapturing depreciation rental property

[jakinion]

I bought a property in 1998.  In 2010 I moved out of state and could not sell it so I rented it.  I have depreciated it over the years and sold it in 2021.  I need to know if or how to recapture this depreciation when filing this year.  I entered everything it asked me to, but I do not see a recapture of depreciation on there.  I am worried as I sold a rental property back in 1997 with a similar situation and ended up paying over $8000 in taxes including penalties and interest for not recapturing the depreciation and I do not want to end up paying penalties and interest again.   I want to pay everything up front when I file this year.

[DianeW777]

The gain on the sale will receive capital gain treatment because it was a rental real estate property.  The depreciation recapture is part of the gain and it is subject to a capital gains rate of 28%. In other words it will not be taxed at a higher rate of tax even if your ordinary income tax rate is higher.

The key is that the amount of depreciation will be recaptured because it automatically translate to that as gain if you sold the rental property inside the asset of the rental section.  You will see an entry on Form 4797 and it will carry to Schedule D, then to your Form 1040.

The cost of the rental property, reduced for depreciation will be the gain, then any gain to the extent of all depreciation will be taxable.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss. 

To figure out the selling price for each asset:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one. 

Use the original cost of each asset listed on depreciation (all belongs to house B now) add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

Please update here if you have more questions.

[AmeliesUncle]

When you print out your tax return, look at Line 19 of Schedule D.  That should show the amount of depreciation that is being taxed under the special rules.