John converts his personal residence to a rental property five years ago. The house original cost was $200,000. Its FMV was $135,000 when it was converted into a rental. Over the 5 years, $10,000 in depreciation was taken. John sold his property for 145,000.
1. Original Cost $200,000
2. FMV on Conversion date $135,000
3. Depreciation Taken (straight Line) $10,000
4. Basis for tax loss (line 2- line 3) $125,000
5. Basis for tax gain (line 1-line 3) $190,000
6. Net Sales Price $145,000
7. Tax Loss (excess of line 4 over line 6) None
8. Tax gain (excess of line 6 over line 5) None
John has NO gain or loss, even with incurred “economic” loss ($200,000-$145,000).
QUESTIONS:
1) Will John still be liable for unrecaptured depreciation ($10,000)?
2) Is this depreciation calculated as 1) UP TO (Maximum) 25% rate OR 2) always FLAT 25%?
3) If he waits and sells his rental unit for $201,000, would his taxable amount be only $1,000 (smaller of gain OR Depreciation recapture)?
Many, many thanks for your inputs, suggestions, and ideas!!!
1. Original Cost $200,000
2. FMV on Conversion date $135,000
3. Depreciation Taken (straight Line) $10,000
4. Basis for tax loss (line 2- line 3) $125,000
5. Basis for tax gain (line 1-line 3) $190,000
6. Net Sales Price $145,000
7. Tax Loss (excess of line 4 over line 6) None
8. Tax gain (excess of line 6 over line 5) None
John has NO gain or loss, even with incurred “economic” loss ($200,000-$145,000).
QUESTIONS:
1) Will John still be liable for unrecaptured depreciation ($10,000)?
2) Is this depreciation calculated as 1) UP TO (Maximum) 25% rate OR 2) always FLAT 25%?
3) If he waits and sells his rental unit for $201,000, would his taxable amount be only $1,000 (smaller of gain OR Depreciation recapture)?
Many, many thanks for your inputs, suggestions, and ideas!!!
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