This is for Maribeth. I have re-read the entire previous thread on this subject and would like to clarify one thing on which I still have a question. In a situation, for example, when total gain is $75,000, and of that amount $25,000 is attributable to depreciation, and taxable payments are received in the amount of $9,000 for the year (not including interest) -- are you saying the entire $9,000 would be 1250 gain since it has to be recognized first? Or would $3,000 be 1250 recapture at 25% and $6,000 be capital gain @ 15% (assuming TP is in 25% tax bracket or higher). And this treatment would apply for succeeding years, until all 1250 is recaptured? Disregard the land calculation for purposes of illustration. I am looking for the theory here.
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Last edited by Burke; 07-15-2010, 01:17 PM. -
When this law change first came about, that was the big question: which gets recognized first? Is it prorated? I can remember sitting in tax seminars and listening to the instructors and the participants arguing back and forth over "which comes first". There was some confusion back then, and I believe at one point we thought that the 15% capital gain would be recognized first. One tax instructor kept saying: no, that is too good to be true, it is going to be the 25% first or it is going to be prorated.Originally posted by Burke View Post
Well, it wasn't prorated and the 15% gain is not recognized first. The full amount of the §1250 unrecaptured gain is recognized first. In your example, the $9000 gain received in the current year would be subject to the 25% rate. And that will continue every year, until all the §1250 gain has been recognized; then the regular capital gain, at whatever the effective rate is then, will be recognized.
Maribeth -
Thank you verrrrry much!Comment
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