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Old 08-09-2012, 05:21 PM
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Depreciation of Personal Property after rental use

I lived in my home for 24 months, then I had to move (in 2010) for work and rented it out to tenants. I am about to move back into the property soon as my full time, permenant residence. I took about $7500 in depreciation over the little less than 2 year rental time. Will I need to pay back the tax liability of the depreciation even if I am still living in the house, or will I owe that amount whenever I sell the house later down the road? Any info would be greatly appreciated.



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Old 08-11-2012, 04:39 AM
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“Will I need to pay back the tax liability of the depreciation even if I am still living in the house,”---->No not at this time but when you dispose of it in the future. It is important to note that as you have used your home for any type of business/investment, you must account for the depreciation during tax preparation on the sale of the home. If you did not claim depreciation, there is a rule that states depreciation is "allowed or allowable." This means that even though you may not have claimed depreciation for the business use portion on your tax return, the IRS is going to assume you did, and the amount of the depreciation deductions allowed or allowable will be recaptured as taxable income in the year of your home sale.
“or will I owe that amount whenever I sell the house later down the road? “---->I think so;you need to recapture unrecaptured real estate depreciation, $7500 in this particular case, when you dispose of the residence. The unrecaptured depre is neither sec 1245 nor sec 1250 recature.The unrecaptured depre is taxed at 25% rather than the long term capital gain tax rate,0~15%,depending on yur tax bracket.The unrecap depre reduces your long term capital gain by $7500(for example, you can exclude up to $250,000 in profit from the sale of a main home (or $500,000 for a married couple) as long as you have owned the home and lived in the home for a minimum of two years as long as you can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your main home.).However, I fyou sell the residence at a loss, then no depre needs to recaptured. As you can see, losses from the sale of personal use property, such as your home are not deductible. It is not eligible for the capital gains loss of up to $3,000 annually.



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