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01-13-2015, 02:49 PM
 Junior Member Join Date: Jan 2015 Posts: 8
Recaptured depreciation rate

We sold a residential rental property in 2014.
I need to understand the rates for income tax on recaptured depreciation and capital gains.
I have read that the standard 25% and 15% respective tax rates may be reduced if we are in the low (10% to 15%) tax brackets, which we are.
Is this correct?
Do the recaptured depreciation and capital gains amounts combine wit other amounts of income to determine our bracket?
Thanks.

01-13-2015, 10:46 PM
 Moderator Join Date: Oct 2010 Posts: 5,258
We sold a residential rental property in 2014.
I need to understand the rates for income tax on recaptured depreciation and capital gains.
I have read that the standard 25% and 15% respective tax rates may be reduced if we are in the low (10% to 15%) tax brackets, which we are.
Is this correct?=>>I do not think so;aslongas your tAX bracket is higher than 15%, then you need to pay tax on the recap depre at 25% as ordinary income.if your marginal tax rate is 15%, then the rate’d be 15%,NOT 25%, if your tax bracket is 15%, then the rate on recap depre is 15% NOT 25%.

Do the recaptured depreciation and capital gains amounts combine wit other amounts of income to determine our bracket?==>>no only your capital gain is combined with ither amounts of income to determine your tax bracket; When property is sold at a gain, some element of that gain is attributable to depreciation deductions taken in prior years. When you dispose of property that you depreciated using MACRS, any gain on the disposition generally is recaptured (included as income) as ordinary income up to the amount of the depreciation previously allowed or allowable
your capital gain generated from the sale of your home includes recap depre in it;aslongas you take a loss on the sale of your home(once it was used as rental home), then there’d be no sec 1250 recap depre.for example, say,

On the contrary, if there is capital gain on disposition of your home(once it was used as rental home), then, the recap depre’d redcue your long term capital gain amount. A Section 1250 gain is recaptured only upon the sale of depreciated real estate, just as with any other asset..

01-14-2015, 10:37 AM
 Junior Member Join Date: Jan 2015 Posts: 8
Quote:

Let me put some round numbers to the question.
Purchase price of the property was \$55,000.00
Improvements..............................\$30,000. 00
Depreciation over 12 years in service..\$25,000.00 (MACRS)
Net sale price...............................\$117,000.00

Taxable income..............................\$22.000.00
SS income.....................................30,000. 00

Married filing jointly; standard deductions.

What rates can I expect to pay for recaptured depreciation and capital gains?

I am only seeking information...I do not expect you do do my taxes for me!
Thanks.

Last edited by Ronno6 : 01-14-2015 at 07:20 PM. Reason: figure adjustment

01-14-2015, 07:56 PM
 Moderator Join Date: Oct 2010 Posts: 5,258
Quote:
 Originally Posted by Ronno6 Thanks for your reply. Let me put some round numbers to the question. Purchase price of the property was \$55,000.00 Improvements..............................\$30,000. 00 Depreciation over 12 years in service..\$25,000.00 (MACRS) Net sale price...............................\$117,000.00 Taxable income..............................\$22.000.00 SS income.....................................30,000. 00 Married filing jointly; standard deductions. What rates can I expect to pay for recaptured depreciation and capital gains? I am only seeking information...I do not expect you do do my taxes for me! Thanks.
Then yur total LTCG is \$62K;\$117K-\$55K; your bookvalue of the improvement is \$5K;\$30K-\$25K, so your net ltcg is 37K;\$62K-\$25K as land value(\$25K) is not depreciable.
So your tax bracket as mfj is 15% since your taxable income is \$22k(you do not count your soc sec benefits of \$30K as taxable income as its amount for mfj status is less than \$32K),

1) Then you must pay tax of 15% on \$25K as sec 1250 depre expense

2)and no tax on the remaining sec 1231 gain of \$12K as your marginal tax rate is 15%, so 0% tax on the gain of \$12K.

01-15-2015, 10:17 AM
 Junior Member Join Date: Jan 2015 Posts: 8
Thank you.
That is pretty much what I had anticipated, and is about as good as I could hope for.
Looks like waiting for retirement to sell was the way to go!
Thanks again.

02-09-2015, 03:18 PM
 Junior Member Join Date: Jan 2015 Posts: 8
Well, so far things are not going well.
Why the subtraction of the land value?
Doesn't the value of land increase and add to capital gain?
So far the preparer has my AGI at over \$90K and tax due in excess of \$10K.
Our normal taxable income was about \$28K. (I forgot about cashing in IRA.)
We use MFJ standard deduction and have 3 dependent deductions.
Preparer had to add \$25K of SS payments due to income level....(?)

You had indicated that recaptured depreciation is not added to other income to determine tax bracket. On what form or worksheet is it removed from FTCG?

Is all non depreciation recoup LTCG subject to same rate based on income?

What is sec 1231 gain? I thought that was business or partnership...
I'm getting nervous.....

Thanks.

Last edited by Ronno6 : 02-09-2015 at 05:39 PM.

02-09-2015, 10:58 PM
 Moderator Join Date: Oct 2010 Posts: 5,258
Quote:
 Originally Posted by Ronno6 Well, so far things are not going well. Why the subtraction of the land value? Doesn't the value of land increase and add to capital gain? So far the preparer has my AGI at over \$90K and tax due in excess of \$10K. Our normal taxable income was about \$28K. (I forgot about cashing in IRA.) We use MFJ standard deduction and have 3 dependent deductions. Preparer had to add \$25K of SS payments due to income level....(?) You had indicated that recaptured depreciation is not added to other income to determine tax bracket. On what form or worksheet is it removed from FTCG? Is all non depreciation recoup LTCG subject to same rate based on income? What is sec 1231 gain? I thought that was business or partnership... I'm getting nervous..... Thanks.
Why the subtraction of the land value?=========>>>>>>as land is not depreciable. So it is not subject to 1250 depre recapture.
Doesn't the value of land increase and add to capital gain?==>yes it does; however, as land is not depreciable,it is subject to sec 1231 gain.
So far the preparer has my AGI at over \$90K and tax due in excess of \$10K.
Our normal taxable income was about \$28K. (I forgot about cashing in IRA.)
We use MFJ standard deduction and have 3 dependent deductions.
Preparer had to add \$25K of SS payments due to income level....(?)=======>> as mfj filers, you need to report 50% of your sos sec benefits as part of your gross income aslongas your provisional income, MAGI, is \$34K.

You had indicated that recaptured depreciation is not added to other income to determine tax bracket. ========>>>>>>>No; recapture depreciation itself is ordinary income taxed at 25% aslongas your tax bracket is 25% or higher; r 10% or 15% if your tax bracket is 10% or 15%.So what I mean is that depre recap itself does not increase your AGI/TI.

On what form or worksheet is it removed from FTCG?=========>>aa said sec 1250 depre recap is reported on sch d and you need to file qualified div/capital gain worksheet

Is all non depreciation recoup LTCG subject to same rate based on income?====Not based on income but based on your marginal tax rate; for example, qualified dividend and long-term capital gain: tax rate is 0% for the 10%–15% brackets; 15% for the 25%–35% brackets; and 20% for the 39.6% bracket for 2014.

What is sec 1231 gain? I thought that was business or partnership...=====>>>>>>correct. it is gain from sec 1231 pty, depreciable business/trade property , that has been held for over one year; Section 1231 treatment allows you to enjoy tax favored treatment for 1231 property gains that are greater than losses on such property. This means that if the asset could be sold for a value greater than its basis then it would be taxed at a capital gains rate which is lower than an ordinary income rate as mentioned above. However, if the 1231 property resulted in a loss, then the taxpayer can treat it as an ordinary loss and such a loss may reduce your taxable income.

02-10-2015, 01:22 PM
 Junior Member Join Date: Jan 2015 Posts: 8
Actually, as I read, MFJ AGI over \$44K renders 85% of SS Benefits taxable. (?)
I guess the long and short of it is: do the preparer's figures look reasonable?
Or, should I fend another preparer?

02-10-2015, 01:48 PM
 Moderator Join Date: Oct 2010 Posts: 5,258
Quote:
 Originally Posted by Ronno6 #1Actually, as I read, MFJ AGI over \$44K renders 85% of SS Benefits taxable. (?) #2 do the preparer's figures look reasonable? Or, should I fend another preparer?
#1;not agi but magi,provisional income when figuring tax on social security income is Adjusted Gross Income plus nontaxable interest plus 1/2 of social security benefits.

#2;actually it is taxlaw

Calculate Taxable Social Security Benifits

02-11-2015, 01:44 PM
 Junior Member Join Date: Jan 2015 Posts: 8
So, in the end,tax bracket, cap gains and recap dep rates are determined by MAGI BEFORE deductions and exemption amounts have been subtracted?

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