How do you calculate depreciation recapture?

How to Calculate Depreciation Recapture

1. 1.) First, calculate the adjusted tax basis:
2. 2.) Calculate the realized gain:
3. 3.) The depreciation recapture value is the amount of depreciation taken multiplied by a 25% rate:
4. 4.) The remaining gain is taxed at the capital gains rate of 0%, 15%, or 20%:

How do you calculate depreciation recapture on rental property?

How Rental Property Depreciation Recapture Works

1. Total recognized gain = $176,360.
2. Depreciation expense = $36,360 x 24% ordinary tax rate = $8,726 tax based on income bracket.
3. Remaining gain = $176,360 – $36,360 depreciation expense = $140,000 x 15% = $21,000 tax based on capital gains.

Is depreciation recapture always 25 %?

Depreciation recapture is the portion of your gain attributable to the depreciation you took on your property during prior years of ownership, also known as accumulated depreciation. Depreciation recapture is generally taxed as ordinary income up to a maximum rate of 25%.

What is the depreciation recapture tax rate for 2021?

25%
Depreciation recapture is the portion of the gain attributable to the depreciation deductions previously allowed during the period the taxpayer owned the property. The depreciation recapture rate on this portion of the gain is 25%.

How do I calculate depreciation recapture?

How to Calculate Depreciation Recapture. Calculate the depreciation that was allowable for all years including the year you sold the asset. Add this back to the basis of the asset, then find the difference between the selling price and the basis. Examine the depreciation that was allowed, including in the year of disposal.

Is depreciation recapture ordinary income?

Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis. The difference between these figures is thus “recaptured” by reporting it as ordinary income. Depreciation recapture is reported on Internal Revenue Service (IRS) Form 4797.

Is bonus depreciation subject to recapture?

Unfortunately, bonus depreciation is subject to the depreciation recapture tax within the tax year of their sale. This means that any gains on the property upon its sale are taxed at the regular income tax rate instead of the reduced capital gains tax rate.

What are recapture taxes?

Recapture Tax Law and Legal Definition. Recapture Tax means the tax charged to the home owner during certain specific situations to get back the costs. For instance, some government sponsored or insured programs, like HUD Low Income Housing programs, require that the buyer occupy the property and retain ownership for a specific period of time.