A friend owned an eight unit apartment building for 17 years which he sold last year. He has not filed a tax return for several years, maybe he should have, since he has no other sources of taxable income and the apartment was not producing net taxable income without considering depreciation.

Question? Does the depreciation get recovered and taxed at 25% even though he had not received a tax benefit from depreciation? In other words it seems since he did not receive a tax benefit from depreciation, it seems he should not be obligated to pay taxes on the depreciation at 25%. He will owe taxes because there is a long term capital gain on the property.

Terry

I beleive he will pay the recapture on all depreciation ALLOWED OR ALLOWABLE whether he took it or not.

and the apartment was not producing net taxable income without considering depreciation

If the apartment was losing money, then he may have a net operating loss that might be useful this year with the sale. The accumulated losses might be able to carryforward to the current year and offset some of the gain on the sale.

It's probably worth his while to go back and figure out those old returns that he never filed. That's the best way to calculate his net operating loss carryforward into the current year.

--Peter