Sale of Rental Property

[Michael Bratt]

Client has rental property sold in 2016. To use round numbers, original purchase price was $250,000, sold for $325,000 in 2016. But depreciation of $20,000 taken over the years, so basis is reduced to $230,000 and taxable gain ($325,000 - $230,000) is $95,000.

I do not know where the $20,000 recaptured depreciation is reported on Form 4797 or Schedule D and tax computed at the 25% rate and where the remaining $75,000 is reported and tax computed at the 15% cap gain rate.

Also, is there a way to handle other items (appliances, etc.) added to the house, before the new de minimis rules, that have not yet been fully depreciated (at a 5-year schedule) and are included as part of the sale?

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[lotax]

Make pretend you don't know about the unrecaptured section 1250 gain for Form 4797 and Schedule D. Report the total gain on those forms. Then, later, when you're computing the actual tax on page two of the 1040, suddenly remember that there was some unrecaptured section 1250 gain (included in the 4797 numbers and in the Schedule D numbers) and go find the separate IRS worksheet that computes the tax when you've got unrecaptured section 1250 gain. I can't retrieve it right now, but the separate worksheet has some very clear title, something like "Separate Worksheet To Compute Tax When There Is Unrecaptured Section 1250 Gain".
Let us know if this works out OK for you...