Posted by Dave T on December 27, 1999 at 18:56:03:
I guess it was too late at night, my mind was foggy, and my vision was blurred. Maybe that’s why I failed to include a description of the capital gains depreciation recapture at the 25% rate in my response.
Thanks for keeping the record (and me) straight.
Just the tax fax pleezz… - Posted by ccreed50
Posted by ccreed50 on December 25, 1999 at 21:36:03:
Help me here–only 5 days to Y2K and sinking fast…:
1)Rental property is 40-year class life depreciation property.
2)If you claim the depreciation annually and sell the property after a holding period of say, 7 years, you have to pay back the 7 years depreciation on your taxes–what the IRS calls ‘recapture’. Not so good, but at least it’s 7 year a float on the gummint’s nickel…
BUT, if you 1038-exchange the property, they don’t recapture the depreciation. ???
In which case your basis in the new property is–what?
Thanks,
–CR
Re: Just the tax fax pleezz… - Posted by Dave T
Posted by Dave T on December 25, 1999 at 23:44:45:
DISCLAIMER: I am not a tax professional. The information provided in this post should be confirmed by a competent tax professional before you act on any information contained herein.
Q. Rental property is 40-year class life depreciation property.
A. Residential rental property (including duplexes, apartment houses, condominiums and cooperative units specifically used personal residences – does not include hotels and motels) falls into the 27.5-year (straight line) residential rental real property class. Commercial real property falls into the 39-year (straight line) commercial real property class. The 40-year depreciation rate applies to alternative minimum tax (AMT) calculations.
Q. If you claim the depreciation annually and sell the property after a holding period of say, 7 years, you have to pay back the 7 years depreciation on your taxes–what the IRS calls ‘recapture’.
A. Depreciation recapture rule on residential real estate is: The amount of depreciation in EXCESS of straight-line is recaptured as ordinary income in the year of sale.
Q. BUT, if you 1038-exchange the property, they don’t recapture the depreciation. In which case your basis in the new property is–what?
A. If you use a 1031 tax deferred exchange for qualified investment property, the simple rule for determining the basis of the acquired property is
Net Cost of acquired property - Gain NOT taxed on property given up = New basis
A reason for a tax professional - Posted by Bud Branstetter
Posted by Bud Branstetter on December 27, 1999 at 11:39:37:
If you sold a residential property that you have owned for only 7 years you would not have any accelerated depreciation that Dave T commented on. You would have been using straight line and as such you would recapture that depreciation at 25% tax rate. A decent explanation can be found at http://ma.realtorplace.com/Legal/lbrieftaxrecapture.htm
Or if you want to read the pubs yourself go to: http://www.irs.treas.gov/plain/forms_pubs/pubs/p54403tu.htm