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Gary Bode CPA

Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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I had a 1099-C for about $135,000. My husband didn't have any withholding on Social Security. His employer couldn't withhold due to incompetence. I felt utter dread wash over me. Memories of owing the IRS before were constantly on my mind. I called a local CPA. Besides being clueless, he wanted to charge me for every question I had about insolvency. I looked on line and found little hope of the countless stories of permanently disabled people like myself getting their student loans forgiven only to be asked to pay taxes on it as if it were income.
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Form 8825 CPA advises planning when selling depreciated Rental Property | Schedule E | Capital Gains

By Gary Bode CPA, on October 15th, 2012

Gary Bode, CPA: it pays to calculate your potential Capital Gain if you plan to sell depreciated rental property. (910) 399-2705.

Form 8825 CPAs sometimes see clients get stung on Capital Gains tax when selling their rental property. Why? Recapture of prior depreciation factors into the Capital Gain (Loss) calculation. Happens with Schedule E rental property too of course.

The example below uses a residential piece of rental property. It ignores land and building segrgation, just to keep things simple. Residential rental property uses straight line depreciation with a 27.5 year life. So, every year you get to deduct 1/27.5th of the purchase price as depreciation.

An Example of Capital Gain calculation on the sale of Rental Property on Form 8825 and Schedule E

Let’s say you bought rental property 10 years ago and sold it today:

  • Purchase Price: $275,000.
  • Prior Depreciation: $100,000 [($275,000/27.5 years) x 10 years].
  • Sales Price: $275,000. You broke even right? Not for IRS tax purposes.
  • Capital Gain: $100,000 [$275 sales price - $275 cost + $100 recaptured depreciation] Ouch.
  • Capital Gain tax: $15,000 (but who knows what that will be in 2013).

The Capital Gain tax consequence of selling depreciated rental property sometimes shocks clients. Planning isn’t always straight forward in the Recession.

I’m a Form 8825 CPA with a virtual office to serve you where ever you live. I have dozens of posts on this website on Form 8825 and Schedule E topics. I have extended family that own rental property. So I have to keep current with changing tax regs. We offer a free phone consult. (910) 399-2705.

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