All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

Posts: 1
Registered: ‎02-12-2018

Taxed TWICE for depreciation after sale of rental?

Sold a "long-term" residential rental (section 1250) property and "realized" a gain.  As stated in chapter 4 of publication 544 "Sales and Other Dispositions of Assets", I reported my gain on parts I and III of form 4797.  Depreciation is taken into account here to reduce the basis and increase the differential (gain/profit) between the adjusted basis and the sales price.  This "total gain" is then carried to schedule D as a long term capital gain.  Schedule D has a worksheet which uses the gain (having taken the depreciation into account) from form 4797 to calculate the tax owed.  So far so good.  Is there an explanation as to why the depreciation is taxed again as "Unrecaptured Section 1250 Gain" if the amount was already used in taxing the capital gain?

Posts: 72
Registered: ‎01-12-2018

Re: Taxed TWICE for depreciation after sale of rental?

The depreciation is taxed at your ordinary income rate.

Posts: 74
Registered: ‎09-16-2014

Re: Taxed TWICE for depreciation after sale of rental?

Hi Unrecaptured,


Welcome to the community!


There are many tax rates that apply to gain from the sale of rental real estate- gain due to depreciation on the home (i.e. "unrecaptured depreciation" or Section 1250 gain) is taxed at a max tax rate of 25%, gain due to depreciation on other assets depreciated separately like a washer or stove is ordinary income, and gain on the home above the depreciation recapture amounts (such as due to appreciation in the housing market) is taxed at 15% or 20%, depending on your regular tax rate. It is possible the software is not taxing you several times, but asking you additional questions to see what the right tax rate to apply to that gain. From the sounds of it, you are reporting the sale of a rental correctly- it starts in Part III of Form 4797, travels to Part I and Schedule D line 19. If you have tax questions about your specific situation, you may want to take the time to chat with an agent.


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