Need help on rental sale

[PIGLEE]

She got some of my figures wrong, or she was using another example with amounts very close.

My example is::

Cost 95,000
Depreciation (straight line) 18,000
Sa;es Price 130,000

Profit is 130,000 - 95,000 + 18,000 = 53,000 Profit

Question is the 53,000 taxeed all as capital gain ?

OR
18,000 taxed as ordindary income & 35,000 taxed as Capital Gain ?

Hope that helps? What is your opinion?

[taxmom34]

maribeth

now, you have confused me in your example. you subtracted the 30,000 depreciation from the cost to bring down the basis. my confusion is how you seperated the 50,000 gain, how do you do that on tax return? for the 15% and 25%,

[PIGLEE]

Thanks that helps alot. Your first statement clairifies a lot. I was thinking of them as the same thing. No wonder my thinking was going in circles. Although I was really hoping for the all capital gains answer, it was a lot cheaper.

[Maribeth]

I am going in circles on the item, and I am about "batty".

Office rental that has been taking MACRS S/L Depreciation. Here are some figures

Cost 95000 (45,000 is for the land) purchased 1998

Depreciation is 18,000. All straight line.

Sale Price is 130,000

Profit 53,000

Some places I read (and understand) that I DO NOT have to recapture the depreciation as ordinary income.

Then I read (and understand) that I HAVE TO RECAPTURE AS ORDINARY INCOME.

Which is right?. Does the fact that it has been reported on Schedule E, make a difference?

Just what is the definition of "unrecaptured section 1250 gain"? Is it really the normal tax rates with a limit of 25%?

I caught this because I am testing out a new program, and put this return in the old program, and the new program, and got different results. To complicate things, it is also an installment sale.

Any help would be appreciated, I sure need another opinion.

You are talking apples & oranges. Recapture of accelerated depreciation over straight-line depreciation is one concept: unrecaptured §1250 gain is another.

You have been using MACRS on the rental property. By definition, you will not have ANY accelerated depreciation, you have only been using straight-line. There is NO depreciation recapture using ordinary income rates on the sale.

Now, unrecpatured §1250 gain, you probably do have. That gain is the gain caused by the depreciation of the property, not the appreciation of the value of the property over the term of ownership.

That gain is subject to a 25% capital gain rate, not a 15% rate.

An example: Original cost is $100,000. Property has appreciated to $120,000, which is its current selling price. Depreciation taken is $30,000.

Gain on the sale is $50,000 (120,000 - 70,000). Gain subject to regular capital gain rate of 15% is $20,000; gain subject to 25% is $30,000.

hth,

Maribeth

[PIGLEE]

I am going in circles on the item, and I am about "batty".

Office rental that has been taking MACRS S/L Depreciation. Here are some figures

Cost 95000 (45,000 is for the land) purchased 1998

Depreciation is 18,000. All straight line.

Sale Price is 130,000

Profit 53,000

Some places I read (and understand) that I DO NOT have to recapture the depreciation as ordinary income.

Then I read (and understand) that I HAVE TO RECAPTURE AS ORDINARY INCOME.

Which is right?. Does the fact that it has been reported on Schedule E, make a difference?

Just what is the definition of "unrecaptured section 1250 gain"? Is it really the normal tax rates with a limit of 25%?

I caught this because I am testing out a new program, and put this return in the old program, and the new program, and got different results. To complicate things, it is also an installment sale.

Any help would be appreciated, I sure need another opinion.