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Updated over 4 years ago on . Most recent reply

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C Kolli
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Sale of rental property

C Kolli
Posted

I have a rental property which started renting in Aug 2016, value of property claimed in 2016 taxes was $431000(381000 house+ 50000 land), approximately $5k depreciation claimed in 2016 followed by $13000 in 2017,18 and 2019. I plan to sell it this years it being a 15year mortgage has been a negative cashflow of $850 per month though paying about $1700 per month into mortgage principal. 

I hope to sell at about $375000 minus Realtor commission of 5% which is $356250 plus Depreciation Recapture of $44000 equals $400250, net loss of $30750.

My CPA says instead of selling this year if i rent it another year and make it 5 years the Depreciation amount need not be added as it reaches breakeven point for add back hence a net loss of $431000- $356250= $74750 provided i sell it at same price next year.

To explain above this is the email reply my CPA sent today which i can't understand correctly:
(Recapture is built into what is on your beginning figures on the worksheet off the 2016 tax return. When you take those figure it is technically a recapture.When you look at how the depreciation table is, in the five period it is normally called the breakeven point for add back. I am explaining what happens, when it normally happens and the mechanics of how it works. That comes from experienced of working with the sale of rental properties. It is not something that is mapped out for you in a publication. )


So I am trying to understand if that's true that selling in or after 5years of rental would breakeven the Depreciation claimed so not needed to add and have higher paper loss to claim tax benefits.


Please advise and would really appreciate if someone can understand and explain to me what my CPA is trying to tell as she is not able to simplify her explanation and she is also busy helping other clients who have more emergent financial problems during this lockdown.

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