We are in the post season and my brain is only partially functioning. I am confusing myself on the reporting the sale of a client’s rental property. Client owned the property since 2011, but only rented it several years when he lived and worked outside the country. He sold it in 2022.
Property was originally purchased for about $435,000 and sold for just under $600,000. The depreciation schedule was based on the estimated value of the house alone of $344,000. Over the rental life of this property, a total of $40,000 in depreciation was allowable and claimed. It is my understanding that since the depreciation was computed as straight-line, the recapture provisions do not apply to this sale. I assume, however, that the $40,000 depreciation will still serve to reduce the basis from $435,000 to $395,000 (ignoring other potential basis adjustments) when computing the capital gain?
Assuming the above is accurate, I am reading conflicting instructions about reporting this sale. Without recapture, a simple reporting on Form 8949, transferred onto Schedule D as a capital gain seems to work accurately. But other instructions point to a more complex combination of Forms 4797 and Schedule D. (This individual’s capital gain tax rate is 15%; I could probably compute this portion of his tax return with pencil and paper.)
I should know this. Thanks for any help in facing me forward.
Michael Bratt AFSP Arlington, VA