Depreciation (rental and flooring) - selling rental

[Daria B.]

Hi

In selling a rental property I know anything that was being depreciated is subject to recapture.

My question is, if I spent $7k in 2019 on flooring that is depreciated over the years of 2020-2023, and I sell in 2024, is the remaining “what would have been depreciated” over the 27.5 yrs just lost?

Cheers!

[Account Closed]

When you sell a rental property, and you've taken depreciation deductions on certain components of the property, such as flooring, you may be subject to depreciation recapture. The depreciation recapture rules require you to report any gain attributable to the depreciation deductions you've previously claimed.

In your example, you spent $7,000 on flooring in 2019, and let's assume you started depreciating it in 2020 over the standard 27.5-year period for residential rental property. If you sell the property in 2024, the remaining "what would have been depreciated" over the subsequent years is subject to depreciation recapture.

Here's a simplified calculation:

1. Total Depreciation Taken: Let's say you've taken $1,000 in depreciation each year from 2020 to 2023, totaling $4,000.
2. Remaining Depreciation to Be Recaptured: The remaining depreciation that would have been taken over the years 2024 and beyond (up to the end of the useful life, which is 27.5 years in total) would be $7,000 - $4,000 = $3,000.

When you sell the property in 2024, the $3,000 remaining depreciation would be subject to depreciation recapture. The recaptured depreciation is taxed at a special rate of 25% as of my last knowledge update in January 2022. This rate can change, so it's essential to check the current tax laws at the time of the sale.