Tax question on selling previous primary residence

[Jessica Seppo]

Hello All,

My husband and I go back and forth about selling our previous primary residence depending on the market come July 2021. We lived in it for two years and once the current tenants lease is up in June 2021 we may sell. I want to calculate taxes if we were to sell, we meet the primary residence 2 out of 5 years for capital gains.

My question is how do I calculate the depreciation we have to reclaim or recapture? We have an accountant but I want to do it myself to get a rough idea up front as this is on our 2019 taxes. Do I use the depreciation and amortization report and add “Building+furniture & fixtures” which is our total schedule E depreciation and amortization for current year or is there more to it? Any guidance on this is appreciated!

We are cash flowing approximately $500 per month but did have a large expense last year and the home is from the 1920’s. I want to weight out all options.

Thank you in advance!

Jessica

[Ashish Acharya]

Originally posted by @Jessica Seppo:

Hello All,

My husband and I go back and forth about selling our previous primary residence depending on the market come July 2021. We lived in it for two years and once the current tenants lease is up in June 2021 we may sell. I want to calculate taxes if we were to sell, we meet the primary residence 2 out of 5 years for capital gains.

My question is how do I calculate the depreciation we have to reclaim or recapture? We have an accountant but I want to do it myself to get a rough idea up front as this is on our 2019 taxes. Do I use the depreciation and amortization report and add “Building+furniture & fixtures” which is our total schedule E depreciation and amortization for current year or is there more to it? Any guidance on this is appreciated!

We are cash flowing approximately $500 per month but did have a large expense last year and the home is from the 1920’s. I want to weight out all options.

Thank you in advance!

Jessica

It is more complicated than that. The recapture depends on if you have a gain. And not all gain might be recaptured, if allocated properly. Also, Depends on how much gain we are talking about. 

The way you handle the allocation of sales proceeds depends on the amount of recapture.

I am sure you are not going to allocate more than a basis as proceeds to the furnitures because they don’t appreciate. If you did, your recapture would be ordinary income, Not the Unrecaptured 1250 depreciation taxed at the maximum rate of the 25%. 

Also, allocate the sales proceeds to the land because the appreciation on the land doesn’t have to recaptured because there is no depreciation on the land. 

After all that, your depreciation recapture is less of allocated gain to the building or the depreciation that has been taken so far.

The taxes is dependent on which bracket you fall, if you marginal tax rate is more than 25%, then it’s 25%. If not, it’s less.