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Old 07-15-2016, 09:28 PM
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Depreciation Recapture

Hello -

I bought a rental property in 2012 and sold it on 2015. Every year, I have been showing a depreciation loss. The combined depreciation I have deducted is around $7000. However, after I have sold the property, the unrecaptured gain (Section 1250) is calculating the depreciation to be around $10,000.

The tax-calculated depreciation ($10,000) is higher than the actual depreciation ($7,000) that I reported. Based on the forumal, the $10,000 is correct, which means I have under reported my depreciation. How do I rectify this? Can I modify the $10,000 to $7,000?

Thanks for all the help.
Saurabh



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Old 07-17-2016, 08:52 AM
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Quote:
Originally Posted by SaurabhS View Post
Hello -

I bought a rental property in 2012 and sold it on 2015. Every year, I have been showing a depreciation loss. The combined depreciation I have deducted is around $7000. However, after I have sold the property, the unrecaptured gain (Section 1250) is calculating the depreciation to be around $10,000.

The tax-calculated depreciation ($10,000) is higher than the actual depreciation ($7,000) that I reported. Based on the forumal, the $10,000 is correct, which means I have under reported my depreciation. How do I rectify this? Can I modify the $10,000 to $7,000?

Thanks for all the help.
Saurabh
For all practical purposes, U.S. corps must keep two sets of books: one set to comply with Generally Accepted Accounting Practices and the other to comply with the Internal Revenue Code. GAAP rules are intended to promote uniform statements that accurately convey the financial history, health and prospects of a business, while the tax code is intended to generate revenues for the government - In general, the difference between book depreciation and tax depreciation involves the "timing" of the depreciation expense on your biz financial statements versus the depreciation expense on the company's income tax return. The depreciation expense in each year will be different, but the total of all of the years' depreciation expense associated with a specific asset will likely add up to the same total the cost of the asset. You need to reconcile the difference because of the difference in GAAP and tax law on Sch M1 of your 1120S/1120, or 1065.In your case, as the tax calculated depre is larger than your book basis depre, I mean deferred tax liability, you need to decrease your tax laiiblity by reducing your net income on 1102S/1120 or 1065.



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Old 07-17-2016, 09:27 PM
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I mean deferred tax liability, you need to decrease your tax laiiblity by reducing your net income by $2K, the difference between GAAP basis and tax basis depre,on your 1102S/1120 or 1065.



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