Depreciation Recapture For a Rental Property

[ashina74]

What is the name of your state (only U.S. law)? TX

We used to live in a single family home that was converted to a rental property few years ago. We reported all rental income and all related expense including mortgage interest etc on Schedule E together with our tax return every year. We never included or claimed depreciation on the property.

We recently sold the property for a small capital gain amount. We are confused about the following:

1. We are in the 15% tax bracket and we were told that we will not be taxed on for the gain since we have a zero capital gain liability. Is this correct?

2. Are going to be taxed on the depreciation recapture even though we did not take advantage and didn't claim depreciation in our tax returns? Should we amend prior years tax returns?

3 Do we use form IRS 8949 to report capital gains? If not, which tax form should we use to report?

Your help is greatly appreciated!

 

[davew128]

Do yourself a favor and pray you can find a tax pro not swamped before 10/15. You have so many misconceptions, you're not doing yourself a favor doing it yourself.

 

[LdiJ]

What is the name of your state (only U.S. law)? TX

We used to live in a single family home that was converted to a rental property few years ago. We reported all rental income and all related expense including mortgage interest etc on Schedule E together with our tax return every year. We never included or claimed depreciation on the property.

We recently sold the property for a small capital gain amount. We are confused about the following:

1. We are in the 15% tax bracket and we were told that we will not be taxed on for the gain since we have a zero capital gain liability. Is this correct?

2. Are going to be taxed on the depreciation recapture even though we did not take advantage and didn't claim depreciation in our tax returns? Should we amend prior years tax returns?

3 Do we use form IRS 8949 to report capital gains? If not, which tax form should we use to report?

Your help is greatly appreciated!

You really do need a tax pro on this one. However, as it appears that this is a 2014 transaction, I disagree with Dave that you need to find somebody before October 15th. Depreciation recapture is on depreciation allowed or allowable, so unfortunately yes, if you did not claim depreciation it is problematic for you and amending prior year returns may be in order.

 

[davew128]

Depreciation recapture is on depreciation allowed or allowable, so unfortunately yes, if you did not claim depreciation it is problematic for you and amending prior year returns may be in order.

There's a MUCH easier way to deal with the issue.

 

[LdiJ]

There's a MUCH easier way to deal with the issue.

Then why don't you tell us what it is?

 

[TigerD]

Doesn't depreciation essentially create a separate account on which capital gains are due?
If the OP lived in the home for 2 of the past five years, I believe there is an exemption.

Nonetheless, with tens of thousands of dollars in consideration, I concur with the others -- get an accountant.

DC

 

[LdiJ]

Doesn't depreciation essentially create a separate account on which capital gains are due?
If the OP lived in the home for 2 of the past five years, I believe there is an exemption.

Nonetheless, with tens of thousands of dollars in consideration, I concur with the others -- get an accountant.

DC

The law changed a few years ago on the issue of converting a primary residence to a rental property. Now, you have to pro-rate for the period it was a rental and still recapture depreciation and pay capital gains tax on any gain.

 

[davew128]

Then why don't you tell us what it is?

It's called a change of accounting method to take allowed depreciation that wasn't taken. Google it.

 

[LdiJ]

It's called a change of accounting method to take allowed depreciation that wasn't taken. Google it.

I really don't have time for that today.

 

[TigerD]

The law changed a few years ago on the issue of converting a primary residence to a rental property. Now, you have to pro-rate for the period it was a rental and still recapture depreciation and pay capital gains tax on any gain.

Thank you.

DC