Author Topic: Depreciation Recapture  (Read 421 times)

Sand11

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Depreciation Recapture
« on: November 16, 2018, 12:17:22 PM »
I've been studying up on depreciation recapture taxes pretty heavily the last few weeks and feel like I have a decent grasp of it except for a couple things.

1) Some sources I see say that your recapture is taxed at a flat 25% regardless of income, and other sources claim it is taxed at your ordinary rate with 25% being the maximum.

2)Do you recapture depreciation on improvements (roof, flooring, appliances etc.) as well as the structure or only the structure?

oldmannickels

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Re: Depreciation Recapture
« Reply #1 on: November 16, 2018, 12:35:15 PM »
I've been studying up on depreciation recapture taxes pretty heavily the last few weeks and feel like I have a decent grasp of it except for a couple things.

1) Some sources I see say that your recapture is taxed at a flat 25% regardless of income, and other sources claim it is taxed at your ordinary rate with 25% being the maximum.

2)Do you recapture depreciation on improvements (roof, flooring, appliances etc.) as well as the structure or only the structure?

1) It's the latter, ordinary rate max of 25%

2) You recapture whatever depreciation you have taken at sale, so it depends on if you have capitalized and depreciated those items.

Ocinfo

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Re: Depreciation Recapture
« Reply #2 on: November 16, 2018, 03:43:55 PM »
I've been studying up on depreciation recapture taxes pretty heavily the last few weeks and feel like I have a decent grasp of it except for a couple things.

1) Some sources I see say that your recapture is taxed at a flat 25% regardless of income, and other sources claim it is taxed at your ordinary rate with 25% being the maximum.

2)Do you recapture depreciation on improvements (roof, flooring, appliances etc.) as well as the structure or only the structure?

1) It's the latter, ordinary rate max of 25%

2) You recapture whatever depreciation you have taken at sale, so it depends on if you have capitalized and depreciated those items.

Iíd go a step further and state that itís assumed that youíve claimed all depreciation that you are eligible for regardless of whether you actually claimed the depreciation. Put another way, it doesnít matter if you actually claimed the depreciation, you owe the recapture on the amount you would have been allowed to claim.

dandarc

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Re: Depreciation Recapture
« Reply #3 on: November 16, 2018, 03:48:41 PM »
I've been studying up on depreciation recapture taxes pretty heavily the last few weeks and feel like I have a decent grasp of it except for a couple things.

1) Some sources I see say that your recapture is taxed at a flat 25% regardless of income, and other sources claim it is taxed at your ordinary rate with 25% being the maximum.

2)Do you recapture depreciation on improvements (roof, flooring, appliances etc.) as well as the structure or only the structure?

1) It's the latter, ordinary rate max of 25%

2) You recapture whatever depreciation you have taken at sale, so it depends on if you have capitalized and depreciated those items.

Iíd go a step further and state that itís assumed that youíve claimed all depreciation that you are eligible for regardless of whether you actually claimed the depreciation. Put another way, it doesnít matter if you actually claimed the depreciation, you owe the recapture on the amount you would have been allowed to claim.
So take as much depreciation as you are entitled. God I wish we had just sold the damn house when we moved . . .

Wile E. Coyote

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Re: Depreciation Recapture
« Reply #4 on: November 16, 2018, 05:36:48 PM »

1) It's the latter, ordinary rate max of 25%

Agreed.  It is surprising how many articles state that unrecaptured 1245 gain is taxed at a flat 25%, or simply have a chart that say that the rate is 25% without any indication that it is really ordinary income tax rates up to a maximum of 25%.

If you want to read the code yourself (who would, but a geek like me), you would look to IRC ß 1(h)(1)(E).  The language is quite convoluted, but it should be clear that the amount taxed at 25% is only the portion of the unrecaptured 1250 gain that wasn't taxed under IRC ß1(h)(1)(A) (which is the amount that was taxed under ordinary income tax rates).