Patrick Michael Posted January 19, 2018 Report Share Posted January 19, 2018 Preparing my first return with a sale of a residential rental unit and trying to understand how the gain is taxed. The house was purchased in 2009 and has been depreciated, straight line, over 27.5 years. There is a a $106,877 gain and $31,772 in depreciation, none of which is considered "additional depreciation". This is were I'm getting confused. Some of what I have read says that the total amount of the gain that is the result of depreciation is taxed at 25% and others said the entire gain is considered a LT capital gain (which I do not believe is true). When I look at the Schedule D Tax Worksheet it looks like the gain from the depreciation is taxed at ordinary income rates with a maximum rate of 25%. Is this correct? Thanks Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 19, 2018 Report Share Posted January 19, 2018 32 minutes ago, Patrick Michael EA said: ordinary income rates with a maximum rate of 25%. Is this correct Yes. 3 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 19, 2018 Report Share Posted January 19, 2018 Patrick, If you are using ATX, the disposition worksheets in the Fixed Asset tab will do a great deal of the work for you. It is clunky to work with when you go into the disposition tab, but it does a good job of getting everything where it needs to go on the tax return. Tom Modesto, CA 1 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted January 19, 2018 Report Share Posted January 19, 2018 It’s also a good idea to have an excel spreadsheet to do the calculations, I use one that allocates the sales price (pro-rate) amongst building, lands, improvements etc...., then I tie it to the tax program. 2 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 19, 2018 Report Share Posted January 19, 2018 Yes, the land and building are separate dispositions. First you have to decide how much of the sales price was for the land. Then prorate the closing costs by the same percentage. We use the most recent assessment to ballpark how much is land vs. building. We do the same when a building is purchased. 2 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 19, 2018 Report Share Posted January 19, 2018 The bulk sale disposition worksheet in AX will do the allocations for you....Just saying. Tom Modesto, CA 1 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted January 19, 2018 Report Share Posted January 19, 2018 8 minutes ago, BulldogTom said: The bulk sale disposition worksheet in AX will do the allocations for you....Just saying. Tom Modesto, CA I used to be a Proseries user and when I moved to ATX I kept on using it. Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 19, 2018 Report Share Posted January 19, 2018 2 hours ago, BulldogTom said: The bulk sale disposition worksheet in AX will do the allocations for you....Just saying. Tom Modesto, CA You can't bulk sale different kinds of property. Well, apparently you can but you really should not. 2 Quote Link to comment Share on other sites More sharing options...
Patrick Michael Posted January 19, 2018 Author Report Share Posted January 19, 2018 Thanks to all. I learn so much from all of you. Quote Link to comment Share on other sites More sharing options...
SaraEA Posted January 20, 2018 Report Share Posted January 20, 2018 As I understand it, and I could be very wrong, for real estate only the portion of depreciation in excess of SL is subject to recapture. If the property has been depreciated under MACRS, there is no excess and hence no recapture. The depreciation taken is subtracted from cost to yield the adjusted basis, so it raises the amount of capital gain, which is taxed at cap gain rates. If over time the owner had added Sect 1245 property like appliances etc, those gains would be subject to recapture at the 25% rate. 2 Quote Link to comment Share on other sites More sharing options...
Pacun Posted January 21, 2018 Report Share Posted January 21, 2018 Without researching, it is my understanding that if there is a gain bigger that the depreciation allowed or allowable, the whole depreciation is taxed as ordinary income, which is consistent with the benefit received when the depreciation was allowed or allowable. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted January 22, 2018 Report Share Posted January 22, 2018 On 01/19/2018 at 7:01 AM, Patrick Michael EA said: When I look at the Schedule D Tax Worksheet it looks like the gain from the depreciation is taxed at ordinary income rates with a maximum rate of 25%. Is this correct? Thanks No. Actually It is an unrecaptured section 1250 gain that is taxed at a maximum "capital gains" rate of 25%. Quote Link to comment Share on other sites More sharing options...
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