Discussion:Recapture and unrecaptured depreciation pre 1997
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Discussion Forum Index --> Tax Questions --> Recapture and unrecaptured depreciation pre 1997
| 12 January 2008 | |
| have a client used office in home. started in 1970 now sells house in 2007 has both pre 1997 and post 1997 depreciation. I know the post 1997 goes on Sch D lin 19 where does the pre 1997 recapture and unrecaptured go?????on the 1040??? | |
Death&Taxes (talk|edits) said: | 12 January 2008 |
| It reduces the cost of the residence and does not appear except in the calculation of the gain to be excluded, increasing the exclusion. E.g., MFJ sells house for 400K, cost 150K, total depreciation taken 25K all before 5/9/97. The 25K of depreciation is not recognized as income, but reduces the basis of the residence to 125K, and the exclusion used is 275K. | |
| 12 January 2008 | |
| this seems weird because the recaptured amount is taxable @ ordinary income and the unrecaptured amount @ a prefered rate but as you indicated, if the 121 is satisfied they would by pass all the pre 1997 depreciation recapture and unrecaptured amounts? | |
Death&Taxes (talk|edits) said: | 12 January 2008 |
| Reg. 1.121-1(d)(2) is the example of the computation but the example does not cover pre-May 6, 1997 depreciation. Note also this does not work if the portion used for business was a separate structure away from the dwelling. The Regulation covers that and methods of allocating the sale. The depreciation after 5/6/97 that is ineligible for the 121 exclusion is taxed at 25% and reported on Schedule D. Publication 523 also may shed some light on this.
Believe me, when IRS proposed the new Regulations in the year 2000, I think all of us were amazed for prior to that, we did have to allocate part of the sale to the business usage and part to the personal residence. They chose 5/6/97 as the date because that was the date in law set by the Taxpayer Relief Act of 1997 wherein Section 1034 was practically sunsetted and replaced by Section 121. For three years afterward, all of us followed the old proration and allocation rules, and often clients, knowing they would be selling, would tell us they were going to stop using their home office a year or so before they would sell. | |
| 12 January 2008 | |
| I understand all this but what about the issue of pre 1997 both ACRS amd MACRS? If they simplpy lower the basis, isn't that buy passing the ordinary income on excess depreciation and the 25% tax on the unrecaptured amount pre 1997? | |
Death&Taxes (talk|edits) said: | 12 January 2008 |
| That is what I am trying to tell you; they granted absolution, or a Truce of God, on the pre-May 1997 depreciation. It only reduces basis of the residence. Only if the gain on the sale exceeds the 250/500K limits might this come into play. | |
| 13 January 2008 | |
| Thanks. here is another senerio. Have rental property file schedule E for years on the beach then convert to primary residence and live in it for 2 years then sell it tax free except for the unrecapture 1250. How do you take it off the books of the schedule E. | |
| 13 January 2008 | |
| what books?
Neil, don't you have to go through the 4797 before you get to Sch D? | |
