Sale of House

[laffnatu2]

What is the name of your state?NC
We recently sold our house (Nov.15th) and bought another. Our tax preparer recommended depreciating the first house several years ago. At the time we started the depreciation we had it as a rental house. I believe this is a 10 yr thing.
How would selling the first house and buying the second affect our taxes this year?
I hope this post makes sense. I am not exactly sure how I should phrase it.
Thanks for any help

 

[abezon]

Any depreciation you claimed after May 1997 has to be recaptured as regular income on the tax return. Other than that, the capital gains can be excluded (up to $250,000/owner) if you owned & lived in the house for 2 of the 5 years prior to sale. Since the hosue was a personal use asset when you sold it, you cannot do a 1031 exchange to defer the taxes on the recaptured depreciation.

 

[laffnatu2]

Thanks for your help Abezon.
This depreciation thing is new to me. I just hope it hasn't hurt us in the long run when tax time comes around.

 

[abezon]

Worst case scenario: you depreciated $2000 total since 5/97. This $2000 cam off your ordinary income & saved you taxes at your marginal rate (probably 28% back then). Now the $2000 gets added back into your income & is taxed at your marginal tax rate (probably 15 or 25% now, after the tax cuts of the last 3 years). So, you deferred AND reduced part of your total taxes from 97 to now. I.E., you got the gov't to reduce your old tax bills by $560 and years later have to pay back $300-500. This hurts you how?? Usually you have to borrow money from friends or relatives to get that kind of deal.

 

[laffnatu2]

OOOOOOOOOO.. ok. I am understanding the depreciation now. It has been several years since we did this and she (tax preparer) only told us not to sell our house for 10yrs. But we had a good offer and sold it before the 10 yrs was up. I thought that we would be penalized or something. I was expecting to have to pay in this year but now it's not sounding as bad as I thought.
Thanks for the explaination. I'm not dreading tax season as much now.