Recapture...

[Hoosier]

Client purchased house in 2000. Client converted house (personal residence) to rental property in 2005. Sold the property in Dec. 2006. Reported depreciation on 2005 Schedule E. Since the property was lived in as personal residence prior to becoming rental property it looks like capital gains would not apply on the sale. However, seems like the accumulated depreciation would need to be recaptured. Am I on the right track and if so any advice on how to recapture? 4797 Part IV?

[jainen]

Follow the instructions

Follow the instructions to Form 4797. Report the sale of the entire property in Section III. Report any Section 121 exclusion on Line 2. There is no recapture of depreciation as such, but gain attributed to depreciation is carried to Line 19 of Schedule D.

[Bonnie]

[. Report the sale of the entire property in Section III.

Can I ask, what section of property would this be listed as under Section III?

I have had something similiar and having been struggling with where to list it.

Thanks
Bonnie

[S T]

Maybe this will help

From my tax software instructions:

Sale personal residence with office in home (so should also work for part rental)

"If a client was entitled to take depreciation deductions because they used their home for business purposes (office in home or a rental property) they cannot exclude the part of the gain equal to any depreciation allowed or allowable as a deduction for periods after 5/6/97. See Pub 523!

I have assets manager, so there are some instructions there, but basically the part of the depreciation already claimed for the office in home/rental needs to be carried to form 4797, Part 3 Sec 1250.

See also TTB page 6-21/22

As was stated prior, it is difficult to advise how to enter in your own individual tax software, as it seems each software provider handles slightly differently.

Good Luck

Sandy

[jainen]

Real estate is

>>what section of property would this be listed as under Section III?<<

Real estate is Section 1250. If the sale included personal property, it's more complicated because there WILL be recapture for Section 1245. Fortunately, it is not usual for incidental furniture or whatever to be given any value in the sale.

I want to emphasize that Form 4797 is used ONLY IF the property is a rental at the time of sale. If it had been converted back to a personal residence, it all goes directly on Schedule D. The result is the same either way. Gain attributed to depreciation is echoed on Schedule D Line 19, and taxed at 25%.