What Property Can Be Excluded From Recapture Of Depreciation For Sale Of Rental

[Beniamino]

s About Taxes)/What property can be excluded from recapture of depreciation for sale of rental Advertisement Expert: Randall Klein, MBA, EA - 4/7/2011 My wife and I sold a home in the last year(March 2010). It was our primary residence from 2001 to Sept. 2008, at which point we purchased another home and converted this home to a rental. The renters moved out in Feb 2010 and we sold the home a month later. Relative to our original purchase price(though I know a bunch of other stuff has to go into the cost basis) we realized a $30K profit from the sale. Because we qualified under the 2 year in 5 rule, I assumed all the profit would be non-taxable. However, I had been depreciating the rental and various items in it over the last two years, and was(stupidly) unaware of the recapture of depreciation at the sale. My understanding, based on my research over the past few days, is that the depreciation is generally taxable at a 25% rate. However, there appears to be a distinction between personal vs. real property(the former is, I gather, "section 1245 property") and the rates the depreciation recapture is taxed at, or whether they can be excluded from the recapture altogether.

I've been depreciating the following assets(all of which were improvements we made or things we bought for the house):

-The house itself

-The new fence I built

-The refrigerator

-The stove

-The carpeting

-The dishwasher

-The window coverings

-The water heater

-The back lawn I installed

Is any of this the type of stuff that qualifies as Section 1245, and if so, what are the implications? I have a PhD myself, but have found the literature on this rather baffling. Any assistance you provide would be wonderful

-The ca

[Nevan]

Yep, the depreciation recapture is a flat 25% tax.

It applies to any real property that generally was on an accelerated depreciation schedule(MACRS is the most common). The other items depend on whether you "bunched them in" with the rest of the depreciatiing real estate or you itemized them out and had their own depreciation schedule. For instance appliances are typically on a 7-yr schedule and yard improvements on a 15-year schedule. If you bundled em all in with the house, your stuck with the full recapture. Generally, the other items you don't worry about because when you sold the house, you didn't itemize sale of refrigerator: $20, grass: $3850,  stove:$230, etc. So no recapture is generally done there.