Taxpayer rented out his personal residence and moved to Arizona. Rent income for 2014 including depreciation. Now in 2015, he decides to sell rental property. Will have some depreciation for 2015 also. It was his personal residence for a few years before he rented it out so he would qualify for the Section 125 exclusion. What happens to the depreciation? Payback?
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Yes, you can not use the §121 exclusion to get rid of the depreciation. The taxpayer will still need to pay taxes on the Unrecaptured Section 1250 gain (depreciation). -
What Form Does the Depreciation Go TO for the payback?
Little confused on this. Thank.sComment
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the basis is reduced by depreciation taken.Comment
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The sale of the rental goes on Form 4797. I think it needs to go on part 1 to properly flow to Schedule D. Usually the §121 exclusion is mentioned on 8949, but with a rental property, you might need to finagle things on 4797 and manually enter the §121 exclusion, or enter a 'fake' basis so the only gain is the depreciation.
That then flows to Schedule D. The gain goes on Line 11, and the depreciation goes on Line 19.Comment
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My software will calculate the differing treatments if it is input properly on the worksheets.Comment
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I believe the depreciation recapture starts as a gain on the 8949 and Schedule D. Next it goes to the section 1250 recapture worksheet and then to the Schedule D tax worksheet. It ends up taxed at the TPs marginal rate. Not so simple.Comment
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