Recapture when selling rental as Primary Residence

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RetiredTrvl
Posts: 19
Joined: Tue Dec 26, 2017 11:44 pm

Recapture when selling rental as Primary Residence

Post by RetiredTrvl » Fri Apr 06, 2018 9:52 am

So I bought a house as part of a 1031 exchange. The house cost 145K but due to the 1031 exchange, the basis is only 130K.

I moved into the house a couple of years ago (the house was rented for 12 years and I took about 48K in depreciation).

If I were to sell it now, after closing costs and commissions, I'd walk away from closing with about 120K - less than the original basis but I would still have 48K recapture gain taxable at 25%.

Given that I've used the property as my primary residence for the last 2 years, does the 250K gain exclusion apply to the depreciation recapture? In other words, I wouldn't owe any taxes on the sale?

Would appreciate your insights into this particular situation - all my google searches have returned scenarios different from mine and all required that the 25% recapture tax be paid. It's hard enough to sell it at a loss without also having to pay 12K in taxes for the recapture.....!!

Thanks!

Cuzz35
Posts: 441
Joined: Mon Jun 28, 2010 11:14 pm
Location: Marietta, GA

Re: Recapture when selling rental as Primary Residence

Post by Cuzz35 » Fri Apr 06, 2018 11:14 am

You cannot exclude gain attributable to depreciation taken after May 1997.
IRC Secs.121(d)(6) and 1250(b)(3); Reg. 1.121-1(d)

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