Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
We became accidental landlords in 2010. Pretty straight forward rental of our previous residence. It sold in 2013 so now it's tax time. I know that the IRS hits you with recapture depreciation tax when the property is sold..taken or not. So we took it. Here is what really ticks me off. Out of curiosity I created a new file in my 2010 TurboTax. I took away the depreciation to see what it saved us. A whopping $17 bucks. The depreciation reduced our tax liability and we had a energy credit that year. It just reduced that credit. NOW that it's sold, that year's depreciation will cost us way more than $17. 15% on $6000 is $900. Am I missing something? Not that much of anything to do with the IRS is fair..this is just wrong.
Are you confusing depreciation with short-term capital gains (eg, 15%)? If one's property doesn't actually depreciate, can one reasonably expect a large tax credit for depreciation?
(Also, I think one has the option of taking straight-line or declining-balance depreciation, which can affect the annual depreciation amount. However, regardless of the method one chooses, it is still recoverable upon sale of the property).
I'd say stop looking at 2010 tax tables and run the numbers on a 2013 program to start....
I will be doing that soon but I have to wait for a lot of documents to come in. My point is that depreciation didn't do me any good when I had to take it. Now at our income level..to have the recapture tax in 2013..it's going to hurt.
Are you confusing depreciation with short-term capital gains (eg, 15%)? If one's property doesn't actually depreciate, can one reasonably expect a large tax credit for depreciation?
Actually the I did have the wrong %..it is 25 on recaptured tax. Well it's not that I expect it. I would have preferred to not take the depreciation since we knew we would be selling. However, the IRS is going to hit us for it regardless if we took it. What I'm having a hard time with is having a credit of $6k in 2010 in no way helped and now that $6k is taxed at 25% in 2013.
I wanted to see what the difference was. Depreciation as opposed to the tax. On my last 3 years of taxes..the depreciation saved me $2466 in taxes. Now that $22k is going to hit me for $5500. Someone correct me if I'm wrong about that. That would make me very happy!
Had you been out of the house for 3 years before you sold? IRS rules state that you do not have to pay capital gains taxes if you lived in the house for 2 of the last 5 years. Is there any chance that you rented and then sold in that 3 year window?
Depreciation is a double edge sword when you sell . Usually it works out ok though..
tell us how you figured your depreciation?
We take the depreciation based on our regular marginal tax rates which are usually up over 25%.
When we sell the recapture is capped at a max of 25%i
Yes..we sold in Jan 2013. I'm not an accountant..I've done our taxes as they have been pretty simple. So I will be the first to say I know just enough to be dangerous. I put it into turbo tax..it calculated the depreciation. The method was SL/MM. What do you mean about regular marginal tax rates?
Quote:
Originally Posted by Moonlady
Had you been out of the house for 3 years before you sold? IRS rules state that you do not have to pay capital gains taxes if you lived in the house for 2 of the last 5 years. Is there any chance that you rented and then sold in that 3 year window?
Actually the I did have the wrong %..it is 25 on recaptured tax. Well it's not that I expect it. I would have preferred to not take the depreciation since we knew we would be selling. However, the IRS is going to hit us for it regardless if we took it. What I'm having a hard time with is having a credit of $6k in 2010 in no way helped and now that $6k is taxed at 25% in 2013.
I wanted to see what the difference was. Depreciation as opposed to the tax. On my last 3 years of taxes..the depreciation saved me $2466 in taxes. Now that $22k is going to hit me for $5500. Someone correct me if I'm wrong about that. That would make me very happy!
I never looked how the energy tax credit works, are you sure it is through the depreciation of the asset? If you did live there when you got the tax credit, and it was already depreciated when you converted it to a rental, did you depreciate it twice?
Those who wrote the tax rules know they expect to get more out of you when you sell.
Quote:
Originally Posted by mathjak107
I am confused , did you sell?
Depreciation is a double edge sword when you sell . Usually it works out ok though..
tell us how you figured your depreciation?
We take the depreciation based on our regular marginal tax rates which are usually up over 25%.
When we sell the recapture is capped at a max of 25%i
Yes the lower income tax payers get screws if your marginal rate is below the 25%
Quote:
Originally Posted by Moonlady
Had you been out of the house for 3 years before you sold? IRS rules state that you do not have to pay capital gains taxes if you lived in the house for 2 of the last 5 years. Is there any chance that you rented and then sold in that 3 year window?
What does not make sense is even a property worth 100k after land values are subtracted out would still be a 100k divided by 27.5 years or 3600 bucks..
That would still equal 900 bucks in the 25% bracket coming back.
if I remember I think there is a phase out after 100k income on income earned passively on real estate so maybe that is what is lowering the op's amount.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Am I missing something? Not that much of anything to do with the IRS is fair..this is just wrong.
I put it into turbo tax..it calculated the depreciation. The method was SL/MM. What do you mean about regular marginal tax rates? 
