Help me calculate Depreciation Recapture & Cap Gains

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Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Help me calculate Depreciation Recapture & Cap Gains

I want to eyeball these calculations -

We are retired now, & our annual taxable income is 50k from the rental building & another 75 k from Investment Portfolio (Dividends + Cap gains).
We file a Joint Tax Return on \$125 k income

We built a Rental Office Building in 1999 for 450k, we have taken Depreciation (No Land Cost) totalling about 210K, let us suppose the proceeds after we sell the building - selling transaction costs are 500k.

I am assuming the following, please correct me if I am wrong -

Adjusted Cost Basis = 450 - 210 = 240 K

Depreciation Recapture = 210 k (500k - 240k ) at 20% = \$42000
Capital Gains = 50k (500k - 450k) at 15% = \$7500

Total taxes owed = \$42000 + \$7500 = \$49500

\$500k (Net Proceeds) - \$49500 (Taxes) = \$ 455,000 Net after Taxes paid

Where am I going wrong ??
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kaneohe
Posts: 5031
Joined: Mon Sep 22, 2008 12:38 pm

Re: Help me calculate Depreciation Recapture & Cap Gains

Rajsx wrote:
Tue Dec 05, 2017 6:24 pm
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\$500k (Net Proceeds) - \$49500 (Taxes) = \$ 455,000 Net after Taxes paid

Where am I going wrong ??
?????????????????

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Help me calculate Depreciation Recapture & Cap Gains

Yes, I caught it,

\$ 500,000 - \$49500 = \$450,500 ,

How about the rest of calculations ? Anybody ?
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curmudgeon
Posts: 1586
Joined: Thu Jun 20, 2013 11:00 pm

Re: Help me calculate Depreciation Recapture & Cap Gains

I thought depreciation recapture is usually taxed at a special rate (25%). It's not normal cap gains.

If you weren't able to fully deduct your depreciation from income in prior years (passive activity loss limitations), the unused PAL will balance against the depreciation recapture when you sell.

kaneohe
Posts: 5031
Joined: Mon Sep 22, 2008 12:38 pm

Re: Help me calculate Depreciation Recapture & Cap Gains

curmudgeon wrote:
Tue Dec 05, 2017 8:49 pm
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If you weren't able to fully deduct your depreciation from income in prior years (passive activity loss limitations), the unused PAL will balance against the depreciation recapture when you sell.
not directly though? I thought PAL when sold went on Sch E and depreciation recapture went on 4797?

kaneohe
Posts: 5031
Joined: Mon Sep 22, 2008 12:38 pm

Re: Help me calculate Depreciation Recapture & Cap Gains

curmudgeon wrote:
Tue Dec 05, 2017 8:49 pm
I thought depreciation recapture is usually taxed at a special rate (25%). It's not normal cap gains.

..................................................
I thought it was ordinary income rates but capped at 25%.

Posts: 320
Joined: Sat Mar 28, 2009 8:38 am
Location: Brooklyn, New York

Re: Help me calculate Depreciation Recapture & Cap Gains

kaneohe wrote:
Wed Dec 06, 2017 12:54 pm
curmudgeon wrote:
Tue Dec 05, 2017 8:49 pm
I thought depreciation recapture is usually taxed at a special rate (25%). It's not normal cap gains.

..................................................
I thought it was ordinary income rates but capped at 25%.
(1) The recapture being discussed is in fact a special type of capital gain -- thus capital losses can offset it (though it's last in line -- other capital gains get offset first).
(2) The rate you pay is the lower of the ordinary income rate that would otherwise apply, or 25% (so there is no benefit from the 0% cap gain "bracket" that other cap gains potentially receive).
(3) Released passive losses are considered separately. For example, if you are in the 33% bracket, you will pay 25% on any depreciation recapture, but will save 33% on the released PALs from the sale.
(4) This could change going forward.

Mule

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Help me calculate Depreciation Recapture & Cap Gains

Thank you everyone for chiming in.
We do not stop laughing because we grow old, we grow old because we stop laughing !!