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Reply to "Depreciation recapture vs. suspended losses on sale of property"
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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I don’t think you can offset the depreciation recapture in any case.[/quote] This is my understanding. This is why we sold our house vs. renting it out. You can't offset the losses with w-2 income (unless you're in the "business of real estate," but the depreciation continues to reduce your basis, and you lose the residence "safe harbor," so you get hammered on taxes when you sell. The only way it makes sense is if you plan to keep the house forever and let your kids inherit it, and then they get the stepped up basis (Biden has the elimination of stepped up basis in his platform, fyi). However, in the meantime, you have the hassles and expense of maintenance (which you also can't deduct). Unless you're in a market that has a ton of room for appreciation, it makes more sense to put your money in a the market. [/quote] It isn’t that much tax though. 25% of depreciation claimed. A fraction of a fraction. I wouldn’t worry about Biden. Carryover basis is too hard to administer. I could see a mark-to-market requirement becoming law for non-real estate assets, though, and would support that 100%.[/quote] But if the house has appreciated in value, and OP waits, they will pay capitol gains on the appreciation over their lower [u]depreciated[/u] basis vs. only paying taxes on profits over $500k (if married) over their original, non-depreciated basis. If the house is in the DC area, that tax would be significant. If OP is losing $$ on the house on a month to month basis that they can't deduct on their annual taxes, that's a very bad investment decision. [/quote] This isn’t how it works and you are confusing two things. If OP needs to sell because of the residency requirement to claim the exclusion from capital gains taxes (capital with an A, like money; not capitol with an O, like a building in which legislation is drafted), that’s one thing. Say basis is $300,000 and house is now worth $800,000 and they meet the residency test, sell it with no capital gains tax (federally— some states have have one) and just pay the 25% tax on whatever depreciation value was claimed during its time as a rental. It wouldn’t be that much. A 1031 like-kind exchange is also a possibility but results in only tax deferral. Also note that even if they hang on to it, they pay both the capital gains tax and the depreciation recapture.[/quote]
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