ninja1024

Do it the way I suggested. you will get the same answer...

They are taking the cost basis available on the house = Purchase Price - Accumulated Deprn.

then Net Sales - Cost Basis = Total Gains

total Gains is then split up into
a. Recaptured Depreciation=Accumulated Depreciation.
b. Capital Gains = Total Gains - Recaptured depreciation.

This is because - you took off depreciation to account for taxes. But now your house has actually appreciated, not depreciated. So all that tax savings you got, you now got to pay back when you sold the house.

The way I am suggesting to reduce burden on your calculations...

a. Net Sales - Purchase Price = Capital gains

They are doing
Capital Gains = Net Sales - (Purchase Price - Accumulated Depreciation ) - Accumulated Depreciation

Accumulated Depreciation cancels out leaving you with what I have said above.

And Accumulated Depreciation = Recaptured Depreciation on which you calculate the Recaptured Dep tax.

Does this make sense?

CP