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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 122622  
Subject: Re: rental property turned primary home Date: 2/21/2000 3:03 PM
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<< Thanks so much for your prompt reply. You must be swamped. Could I push the envelope a little more and ask you to translate? What is "recapture on the depreciation allowed or allowable since May/Aug(?) of 1997"? Sounds like a game of tag to me. >>

Well, it sort of is. The law on sale of personal residence was changed in 1997 (made much more advantageous to the taxpayer), and Congress saw this as one loophole that they closed. So, they said that if you convert a rental into a personal residence, you will be subject to a capital gain tax on the depreciation you took (which reduced ordinary income) after they changed the law. You still come out ahead, but not as much as if they had not plugged this hole.

<< We turned it into a rental property in 1993. What does 1997 have to do with it? And why "allowed or allowable"? Would it just be what we had submitted for depreciation on our tax returns while it was a rental? >>

Assuming that you claimed the depreciation you were entitled to (that's what "allowable" means), yes.

<< Will things like expenses for painting and carpeting that has expired it's usefull life expectancy during the rental period have to be recaptured also? >>

I'm not sure about how depreciable improvements are handled. Anything that went as a current expense would not be subject to recapture, but I'm just not sure about something that you had to depreciate. (See below for more sources.)

<< (I assume recaptured means we will owe this back to the gov't.) If we are at a lower tax bracket when we sell than when the expenses incurred, is that to our benefit, or do we owe them the total dollar amount at our old tax level? >>

Neither. It's a set percentage, which I can't remember and don't want to look up, because I'm overdue for my nap. Check the instructions for Schedule D or IRS Publication 523.

Phil Marti
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