How do I recapture depreciation on residential rental property that has been sold?
If you dispose of residential rental property placed in service after 1986 (or after July 31, 1986, if the election to use MACRS was made), you would not have any depreciation to recapture because you used a straight-line method. If you did not meet this condition or you took the 30% or 50% special depreciation allowance for the residential rental property, use Form 4797 (PDF), Sale of Business Property, to compute the amount of depreciation recapture. In addition to Section 1250 depreciation to recapture, if any, a taxpayer may be taxed at a special capital gains rate on gain due to straight-line depreciation that was previously claimed. This is referred to as “unrecaptured section 1250 gain.” The amount of unrecaptured section 1250 gain is generally that portion of the total gain from the sale of section 1250 property equal to depreciation allowed or allowable, less recaptured section 1250 gain, if any. Unrecaptured section 1250 gain IS NOT SUBJECT TO the normal capital gains rates.
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