All Forum Posts by: Will B.

Ok, this ends up being a simpler solution than I thought. I mis-stated my marginal bracket. My original post referred to a 32% marginal rate. The marginal rate is computed on all income except capital gains & depreciation recapture, whereas I was computing it on the full, combined amount.

Thus, for good reason nothing is being taxed on the Schedule D Tax Worksheet above my 24% marginal rate. Oops!

This is why the numbers for line 19 in that worksheet back out the 32% minimum threshold ($182,100 for single / $364,200 for MFJ) from your total income.

Problem solved, thanks @David M.!

Yes, I have filled out 4797 regarding the property sale figuring basis and gain. Note, I only used straight-line depreciation so line 26 is blank/0's.

I have filled out the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions. I have a reasonable number here that gets carried to Schedule D line 19. Schedule D line 20 directs to the Schedule D Tax Worksheet.

I happen to have LTCG on line 15/16 of Schedule D, but those are unrelated to real estate.

No matter how I fill out the Schedule D Tax Worksheet, I get 0 for lines 39 & 40 (the 25% taxed amount). I presume line 39 should contain the unrecaptured section 1250 gain.

I am trying to work backwards from there to find how this could end up as a gain, but there's nothing obvious. I keep finding that the unrecaptured gain flows through further down to my marginal rate.

Thanks for the responses. You all are confirming my broad understanding on the topic, but my trouble is in the specific technical reporting of this tax situation. How this should be reported in a general case would be helpful.

As I follow schedule D, I get to an end result of the recaptured gains being taxed at my marginal rate above 25%. I am strictly looking at my federal return, nothing to do with state. Where does the depreciation recapture get capped?

Hello!

Set of facts:

- Lived in a residential unit as a primary residence for a number of years.

- Converted to rental and depreciated it for 2 years.

- Sold in 2023.

- Purchase price: $250k

- Sale price: $350k

- Depreciation: $9k => Roughly ( ($250k*.50)/27.5yrs) *2yrs)

- 2023 marginal bracket: 32%

What is the proper taxation?

My work shows that the $100k is a Section 121 exclusion and leaves $0 tax owed.

The $9k depreciation recapture is tricky. I've filled out the 1040 Schedule D Tax worksheet 3 times and each time have come back with it being taxed at the marginal rate of 32%, with no particular special treatment, based on the flow of that worksheet I don't see how it could be any other way.

I have read many, many, many, many, many threads on this forum mentioning the recapture being taxed up to 25%. Has tax law changed recently or am I not filling out a form correctly?