Question

Depreciation recapture on sale of rental property

Forum|Forum|2 years ago
November 15, 2023
3 replies
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My spouse has owned a rental property before we were married. She always filed single and itemized. There were years in which she zero taxable income, some years because she had no earned income and other years because itemized and exemptions exceeded agi.

we now file jointly and are considering selling rental property. In each of her single years, there was depreciation calculated and reported on sch. E. If she had zero taxable income even before considering rental losses, do we have to count the depreciation calculated in those years as part of the formula for depreciation recapture?

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RyanH5

Hi Golfer55. Thank you for joining us today.

Unfortunately, yes any depreciation allowed of allowable to take as a deduction would be subject to recapture. This even applies if you wife chose not to take any depreciation in a given year.

Depreciation of rental properties is calculated using the straight line, mid month method over 27.5 years.

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G

Golfer55Author

Thanks Ryan. I was afraid that would be the answer.

A little followup. It’s too late now, but could that unused depreciation have been used in calculating Net Operating Loss for a Carryforward event?

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Mike9241

maybe no nol if her itemized deductions were in excess of her rental loss

the quick computation for an NOL is the excess of business losses (rental) over business income (would include w-2 wages) reduced by the excess of non-business deductions (her itemized deductions over non-business income (this may ignore certain items that would affect the NOL. the only way to know for sure would be to complete form 1045 schedule A for each year. Negative AGI would probably indicate there is an nol.

Ruth C-L

Great answers from the previous expert. Any unused passive losses (rental losses are mostly passive unless you're a real estate agent/attorney) should be carried forward until the property is sold. In the year of sale, you can use all unused passive losses to offset other income reported on the return.

Ruth C-L, CPA, Esq.

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saxline-86

where do you find the amount to use when filing sale of rental property/