How Depreciation is Recaptured
the holding period -- reducing the book value to $80,000 at the time of sale.
Case 1: The property is sold for $120,000 or $20,000 more than the original cost. The taxable gain on this sale (sale price minus book value) is $40,000. The first $20,000 of this gain is depreciation recapture, and the rest is a capital gain.
Case 2: The property is sold for $92,000. The sale proceeds exceed the book value of $80,000, but do not exceed the original cost of the property. In this case, the $12,000 of gain on the sale is considered a depreciation recapture and there is no capital gain. The reader should note that although the property was sold for less tyhan its original cost, there is no loss for tax purposes because the property was sold for more than its book value.
Case 3: The property is sold for $76,000 which is $4,000 less that its book value at the time fo the sale. There is no depreciation recapture and no capital gain. Instead, there is a capital loss of $4,000.
Currently, the depreciation recapture tax rate is 25%, while the maximum long term capital gains tax rate is 20%.
Case 1: The property is sold for $120,000 or $20,000 more than the original cost. The taxable gain on this sale (sale price minus book value) is $40,000. The first $20,000 of this gain is depreciation recapture, and the rest is a capital gain.
Case 2: The property is sold for $92,000. The sale proceeds exceed the book value of $80,000, but do not exceed the original cost of the property. In this case, the $12,000 of gain on the sale is considered a depreciation recapture and there is no capital gain. The reader should note that although the property was sold for less tyhan its original cost, there is no loss for tax purposes because the property was sold for more than its book value.
Case 3: The property is sold for $76,000 which is $4,000 less that its book value at the time fo the sale. There is no depreciation recapture and no capital gain. Instead, there is a capital loss of $4,000.
Currently, the depreciation recapture tax rate is 25%, while the maximum long term capital gains tax rate is 20%.
Comments(0)
DaveT,
Excellent article thanks for sharing this one. Your posts are also great to help the investor understand todays tax ramifications.
Keep them coming.
John $Cash$ Locke