Capital Gains and Depreciation Recapture on Rental

Forum|Forum|3 years ago
February 24, 2023
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My 2022 income (married filing jointly) is less than $80,000 (taxable income around $63000). I sold my rental property that I have owned for 12 years for a “profit” (using cost basis minus deprecation) of $9000. Do I have to pay Capital Gains/depreciation recapture tax(s)? I'm trying to determine if it is really this simple - that because I fall under the threshold of taxable income that I won't pay any capital gains/depreciation recapture tax. Or am i missing something. Thanks for advice.

Mike9241

there is always a depreciation recapture tax if there is a gain on the sale. only the excess of the gain over the depreciation recapture is eligible for the special capital gain rates. the depreciation recapture will be taxed at a maximum of 25% but will be lower since with 63K in taxable income and filing jointly it looks like you're in the 12% tax bracket. this assumes the 63K includes the entire gain on the sale of the property.

KrisD15

Cost basis minus depreciation is the "Adjusted Basis"

Sale proceeds minus "Adjusted Basis" will give you the Capital gain, HOWEVER you first must report the depreciation that must be re-captured and that is reported as Ordinary Income.

In TurboTax, enter the 2022 rental expenses, and indicate that the rental was sold.

The program will ask what is needed, such as the amount you purchased it for, the amount of depreciation taken and the amount you sold it for.

You will also need to allocate part of the sale to the land (which does not depreciate) and any other assets you may have added, such as appliances and improvements.

Usually with a sale of rental property during the strong housing market we are in, there will be both, depreciation recapture (paying back the depreciation you claimed or could have claimed over the years) and Capital Gains (the increase in value from what you purchased it for to what you sold it for)

@Rungeoff

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