 Selling a depreciated rental house
|
 Dear
Tax Talk,
We have a rental house that we have fully depreciated. My wife and I plan to move into it for two years as our homestead to qualify for the $500,000 free capital gains when we sell. My question is, will I still have to pay back the depreciation amount that I took as a rental house, and if so at what tax rate? Thanks. -- Bill
 Dear
Bill,
You can exclude up to $500,000 in gain from the sale of a home that was a rental property provided you meet the ownership and use tests. You need to have owned the property and used it as your principal residence for more than two years within the last five years on the date of sale. However, you cannot exclude the part of the gain that is equal to the amount that was claimed as depreciation for periods after May 6, 1997.
For example, if the rental of the property commenced in 1986 and was depreciated under the then applicable life of 19 years, the home would have been fully depreciated in 2005. The depreciation from 1986 through May 1997 would be excludable from your income upon the sale of the property after meeting the ownership and use tests. The depreciation claimed after May 1997 cannot be excluded from income. This gain is considered unrecaptured Section 1250 gain and is taxable at a maximum tax rate of up to 25 percent.
To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.
|
