I am selling a townhouse right now that I lived in for 2.5 years 3/97-8/99, and have rented out since (I own no other property and currently rent). I stand to make a pretty decent profit.

You can see my question below and a response I received on another board. Can anyone provide further clarification? Maybe a definition of recaptured depreciation? I assume given my scenario, I won't be taxed on the gains except the amount claimed as depreciation (i.e. I will have to pay taxes on the depreciation claimed $10,000 (.25) = $2500)



I understand that I won't be taxed on capital gains (up to $250,000, since I am single) I make since I did live there 2 of the last 5 but I will be taxed on the depreciation I claimed the past 2 years.

Sounds right to me (provided you haven't claimed another "principal residence" capital gain exemption in the 48 months preceeding your home sale).

Except...

I claimed around $5000 each year (for 2000/2001) depreciation.

The depreciated amount (but not other deductions) will be recaptured when you sell...I understand that the recaptured depreciation is taxed at 25%.

I am selling a townhouse right now that I lived in for 2.5 years 3/97-8/99, and have rented out since (I own no other property and currently rent). I stand to make a pretty decent profit.

Assuming that you haven't excluded gain on the sale of a personal residence in the last couple of years, up to $250,000 of your gain is excluded from your income except for the amount of depreciation allowed or allowable during the rental period. This will hold true as long as you sell before 8/2002. The recapture of the depreciation will be taxed at a maximum rate of 25%, and you'll need to report the sale on Form 4797.

You'll find a lot more information in Publications 523 and 527.

Phil Marti