Do I have to declare the depreciation of a rental property when I sell it?
5 comments for “Do I have to declare the depreciation of a rental property when I sell it?”
You have to pay tax on the portion of the depreciated loss that you recapture (earn) at the time you sell the property.
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Do you HAVE to? No.
Are you SUPPOSED to? Yes.
If you don’t declare it, just don’t get caught.
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The amount of allowable depreciation lowers your basis in the property. You have to follow the recapture rules to figure the amount of gain to be treated treated as regular income rather than captial gain
If you purchased the property for 500,000 you would subtract the 180,000 of depreciation from the 500,000 to get your adjusted basis. The difference of your adjusted basis and the sale price would be your gain. You would follow he recapture rules to see how much of the gain would be regulary income and how much would be captial gain.
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The depreciation is recaptured when you sell the property but it is taxed at 25%, not 15% like a capital gain.
Jim Kirby, CPA/PFS, CFP, CFS
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When you sell for $550K, the $50k is at 15%, the $180K recapture is at 25% (if your income gets that high). You got the $18K per year to lower your income so it’s payback time.
Of course you might have a passive loss carryover that you finally get to take the year you sell.
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