Depreciation Recapture amount

MarginofSafety

If the realized gain is less than depreciation, then how do you calculate depreciation recapture?

Or what if the realized gain is the same amount as depreciation?

Thanks!

scarecrow

So you buy a property for $100 and hold it for two years. If you depreciate over ten years using straight line then depreciation is $20. If you sell the property for $95 (assuming no selling costs) then gain is $15, and it's all "depreciation recaptured" so we calculate tax using the depreciation recaptured tax rate.

cv4cfa

You pay depreciation recapture taxes for the amount of your capital gains above the
book value.

eoin

"You pay depreciation recapture taxes for the amount of your capital gains above the
book value."

Yes, but only up to the extent of cumulative depreciation.

Quick example:

$100 original cost

$20 Depreciation

$80 Book Value

Sell for $110

Gain is split: $20 Recapture (higher rate), $10 (Capital Gain)

Reasoning (if you care) :-).

Depreciation offsets ordinary income, so if you recover it, the government feels the need to tax you at ordinary income rates for that piece of the gain. Any amount above that is deemed investment (capital) gain.

ningning1984

In OP question depreciation is higher or equal to capital gains.

freecmorgan Wrote:
-------------------------------------------------------
> "You pay depreciation recapture taxes for the
> amount of your capital gains above the
> book value."
>
> Yes, but only up to the extent of cumulative
> depreciation.
>
> Quick example:
>
> $100 original cost
>
> $20 Depreciation
>
> $80 Book Value
>
> Sell for $110
>
> Gain is split: $20 Recapture (higher rate), $10
> (Capital Gain)
>
> Reasoning (if you care) :-).
>
> Depreciation offsets ordinary income, so if you
> recover it, the government feels the need to tax
> you at ordinary income rates for that piece of the
> gain. Any amount above that is deemed investment
> (capital) gain.



Edited 2 time(s). Last edit at Friday, June 3, 2011 at 08:11PM by jpsi1.