Recaptured deprecation deduction question (sales, renting, house, capital)

[john3232]

Not sure if this is the correct forum to ask this question but....

I bought a house in California in 1998 for $250,000. I started renting it that year

Deprecation per year is set at 9,457 x 20 or $189,140

Feds I pay 25% or $47,285

California I pay 9.3 or $17,590

Total taxes owed: $64,875

Does the above seem correct?

I plan to see a tax accountant next month but would like to know if I'm on the right track.

Thanks

[jackmichigan]

Capital gains tax rates are based on your income level. The top rate is 20% +3.8% if you're a high income earner. I'm not familiar with California tax rates, but I believe the top capital gains tax rate in CA is 13.3%. Taxes, of course, will be based on your sales price to determine your profit, with the depreciation recapture thrown into the mix. Keep your appointment with your tax accountant! Don't sell until you determine the answers and your best strategy. A 1031 Exchange might be something to consider.

[john3232]

Yeah, I need to speak with an accountant. I'm not a resident of California although this is where the rental property is.

I have paid zero in Cal state tax over the years because of the depreciation and other accumulated write offs.

[1insider]

Definitely need a CPA. Depending on the amount of gain versus total depreciation claimed over the years, some of the profit may be taxed at a different rate. From Investopedia:

Depreciation Recapture on Rental Property

Not all sales of assets are reported fully as ordinary income. For example, gain from the sale of residential rental property has a capital gain application to it. Part of the gain is taxed as a capital gain and might qualify for the maximum 20% rate on long-term gains, but the part that is related to depreciation is taxed at your ordinary tax rate and this can be significantly higher. The technical term for a gain related to depreciation on residential property is “unrecaptured section 1250 gain.”

For example, consider a rental property that was purchased for $350,000 and has an annual depreciation of $20,000. After 11 years, the owner decides to sell the property for $430,000. The adjusted cost basis then is $350,000 – ($20,000 x 11) = $130,000. The realized gain on the sale will be $430,000 - $130,000 = $300,000. Capital gain on the property can be calculated as $300,000 – ($20,000 x 11) = $80,000, and the depreciation recapture gain is $20,000 x 11 = $220,000.
Let’s assume a 15% capital gains tax and that the owner falls in the 28% income tax bracket for 2017. The total amount of tax that the taxpayer will owe on the sale of this rental property is (0.15 x $80,000) + (0.28 x $220,000) = $12,000 + $61,600 = $73,600. The depreciation recapture amount is, thus, $61,600.