Capital Gain / Depreciation Recapture Question

JW, do you have "depreciation recapture" of $36,000, or do you have an "unrecaptured section 1250 gain" of $36,000? You've asked a good question, but you've garbled the technical terminology, and an answer isn't available the way you've asked the question...

Probably the latter. Not to mention that investment property is not depreciated....

In any case, I believe the answer is found by starting with the "Unrecaptured Section 1250 Gain Worksheet" in the instructions for Schedule D, Form 1040, and then working through the rest of Schedule D.

-Mark Bole

I'm trying to estimate the tax liability on a rental property and during my search on the Internet ran into a web site that had a calculator that gave this information. At the bottom the calculator shows the total 11K being subtracted from the taxes due.

Calculate Net Adjusted Basis: Original Purchase Price $ 450,000 plus Improvements +$ 28,645 minus Depreciation -$ 144,460 = NET ADJUSTED BASIS =$ 334,185

1. Calculate Capital Gain Sales Price of Property: Sales Price $ 430,592 minus Net Adjusted Basis -$ 334,185 minus Costs of Sale -$ 25,835 = Capital Gain =$ 70,572
2. Calculate Capital Gain Tax Due: Recaptured Depreciation (25%) $ 36,115 plus Federal Capital Gain Rate (15%) +$ -11,083 plus State Capital Gain Rate: (0%) 0 = TOTAL ESTIMATE TAXES DUE =$ 25,032

I appreciate your helping

Why are you showing 1250 gain? Did you not use straight-line depreciation?

It seems you have held this property for quite a few years. Has the non-depreciable portion(s) of the property (i.e. the land) gone up in value? If so, you may have less depreciation to recapture than you think.

I apologize if this is a duplicate post -- I thought I sent a similar post before -- but it did not show up here or in my sent box.

The online calculator did not show the step where it subtracts the 144460 from the 70570 gain to come up with a -73888 loss which is then multiplied by 15% to get a -11083 capital loss. I don't know whether it is permitted to supply the link to the calculator. My question still is is that 11083 subtracted from the 36115 to obtain my tax liability or can I only offset it by 3000.

The calculator shows the former.

Thanks, JW

No. the numbers are correct. I have come up with another question. I have been searching the Internet to see if I can figure this out. Some sites mention a "special tax rate" of

Thanks for the responses.

JW

If you used straight line you have no additional depreciation subject to ordinary income tax. What you have is unrecaptured section 1250 depreciation of $70572 that goes on Line 19 of Schedule D. You then use the the Sched D Tax worksheet to perform your tax calculation. That will tell you how much of the 70572 will be taxed at 25%. We can't give you an answer because we have no idea what else is on your tax return.

Both. It's taxed as ordinary income at a maximum rate of 25%. Which is why people are telling you that there's no way you can isolate this from everything else on your return. As has been suggested, work your numbers through Schedule D and the tax computation worksheet.

Phil Marti Clarksburg, MD

I appreciate all of your responses. It seems then that the calculations should be:

Calculate Net Adjusted Basis: Original Purchase Price $ 450,000 plus Improvements +$ 28,645 minus Depreciation -$ 144,460 = NET ADJUSTED BASIS =$ 334,185

1. Calculate Capital Gain Sales Price of Property: Sales Price $ 430,592 minus Net Adjusted Basis -$ 334,185 minus Costs of Sale -$ 25,835 = Capital Gain =$ 70,572

It would seem ( without looking at the Sched. D) that the 70,572 would probably be taxed at the 25% level since the gain is less than the depreciation.

And if the gain would have been greater than 144460 then the first 144460 is taxed at 25% and that above 144460 at 15%. Again thanks -- what I have learned is

1. sometimes online calculators give misleading information,
2. gleaning information on the Internet is chancy, and
3. I really need to get into the IRS forms and tough it out.

This looks like a good group.

JW