Correcting recapture deprecaition cost for arefinance cost depreicated as 1250 asset

[Roddog]

Refinance cost depreciated as real property (residential rental property) by prior accountant, I'm recapturing depreciation claimed in prior years that was allocated in the wrong section for amortization cost for a refinance of rental.
The property has been sold in 2017, I need to recapture the depreciation already claimed as 1250 depreciation expense up to sale.
I have to continue recording the refinance cost in the business property section in order to recapture the depreciation upon sale of rental, most program won't allow recapture of depreciation without an asset provided.
If I amortize the entire cost, the depreciation recapture will not be allocated. The amortization deduction and depreciation deduction for the refinance cost is the same amount of deduction for the year and prior years, only difference is $1.

One option considering: To record the refinance cost and recapture the depreciation taken in past and at sale of property, record the initial refinance cost, as asset to recapture depreciation, record part of proceeds from sale to refinance cost, the exact amount, then allocate other sale income and expenses between property and land, attach note explaining classification. The depreciation amount is less than $350.

If anyone have a better solution please respond.


Thanks,

Roddog

[TaxGuyBill]

I would just ignore what was done before, and do it right now. Technically, that would need Form 3115, but I may conveniently forget about it. :-)

As you say, the amount they depreciated is pretty much the same as what should have been amortized. I would just pretend it was correctly amortized in the past, and continue the amortization and disposition in the current year. Again, technically you would need to file Form 3115 to undo the improper Depreciation and 'catch up' on the missed Amortization, but the end result would be the same (a difference of $1), so I would conveniently forget to file Form 3115.

[Roddog]

I would just ignore what was done before, and do it right now. Technically, that would need Form 3115, but I may conveniently forget about it. :-)

As you say, the amount they depreciated is pretty much the same as what should have been amortized. I would just pretend it was correctly amortized in the past, and continue the amortization and disposition in the current year. Again, technically you would need to file Form 3115 to undo the improper Depreciation and 'catch up' on the missed Amortization, but the end result would be the same (a difference of $1), so I would conveniently forget to file Form 3115.

One concern is the recapture tax rate of 25% on the depreciation and amortization shows no recapture tax, which would cause an additional tax of $75.

[JohnH]

Would that be $75 additional tax vs $100 of time to do the recalculation, or are you planing to do the additional work for free?

[TaxGuyBill]

One concern is the recapture tax rate of 25% on the depreciation and amortization shows no recapture tax, which would cause an additional tax of $75.

I disagree. It was was done correctly (amortization), there is not any Unrecaptured Section 1250 Gain. Treating it as if it always was properly done (amortization), there still won't be any Unrecaptured Section 1250 Gain.

Besides, don't you paying tax on the depreciation (Unrecaptured Section 1250 Gain) is only done if there is a GAIN. The disposition of mortgage costs would not be a gain, so you would really end up with the same result anyways.

[Roddog]

I disagree. It was was done correctly (amortization), there is not any Unrecaptured Section 1250 Gain. Treating it as if it always was properly done (amortization), there still won't be any Unrecaptured Section 1250 Gain.

Besides, don't you paying tax on the depreciation (Unrecaptured Section 1250 Gain) is only done if there is a GAIN. The disposition of mortgage costs would not be a gain, so you would really end up with the same result anyways.

I agree, I’m going to record it correctly in year of sale. One question under prior amortization, I’m going to claim the prior depreciation amount from claiming the real property depreciation at 27.5 years, because this is the amount that was claimed in the past and use finance years for the last year. If I do not record it this way, the depreciation write off would be understated and the remaining write off for sale would be overstated, or I can just use the real property years and go forward with this amount.

Thanks

[TaxGuyBill]

One question under prior amortization, I’m going to claim the prior depreciation amount

Sounds good.