How do I report depreciation recapture on home office?
Recaptured depreciation is taxed at a maximum rate of 25%, rather than the common rate of 15% for long-term capital gains. Applicable state taxes might also apply. You should report this recaptured amount on Schedule D (Capital Gains and Losses), not Form 4797 (Sale of Business Property).
Is depreciation subject to recapture?
Depreciation recapture is the gain realized by the sale of depreciable capital property that must be reported as ordinary income for tax purposes. The difference between these figures is thus “recaptured” by reporting it as ordinary income. Depreciation recapture is reported on Internal Revenue Service (IRS) Form 4797.
Can I exclude the gain on the sale of my home?
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home provides rules and worksheets.
Is depreciation recapture the same as capital gains?
A capital gain occurs when an asset is sold for more than its original cost basis. When an asset is sold for more than the book value but less than the basis, the amount over book value is called depreciation recapture and is treated as ordinary income in that year.
Do I have to recapture depreciation on home office?
If you claim home office expenses using the actual expense method, you deduct depreciation if you have a profit. Under the safe harbor method, you don’t. In that case, you’ll have to recapture depreciation for any years when you claimed actual expenses, even if you’re using the safe harbor method at the sale.
What assets are subject to depreciation recapture?
Depreciation recapture is a process that allows the IRS to collect taxes on the financial gain a taxpayer earns from the sale of an asset. Capital assets might include rental properties, equipment, furniture or other assets.
How do I calculate depreciation recapture?
How to Calculate Depreciation Recapture. Calculate the depreciation that was allowable for all years including the year you sold the asset. Add this back to the basis of the asset, then find the difference between the selling price and the basis. Examine the depreciation that was allowed, including in the year of disposal.
Where to report sale of rental property?
Report the sale of the rental property on Form 4797. If you held the property longer than one year, you must report the sale of the land separately from the sale of the structure. Report the sale of the land on Form 4797,…
Does 1031 exchange avoid recapture?
4. 1031 exchange. If you sell rental or investment property, you can avoid capital gains and depreciation recapture taxes by rolling the proceeds of your sale into a similar type of investment within 180 days. This like-kind exchange is called a 1031 exchange after the relevant section of the tax code.
How do I report the sale of rental property?
How to Report the Sale of Rental Real Estate. The Internal Revenue Service treats the proceeds from the sale of rental real estate as long-term capital gains. Depending on your gain or loss on the sale, you may need to record information about the sale on numerous forms, including Form 4797, Schedule A, Schedule D and Form 1040.