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Tax on Depreciation |
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Dear Ms. Lank,
Does the long-term capital gain tax rate (15 percent) apply to the depreciated portion of rental property? We sold a rental in 2006, completely depreciated except the land. I just worked on our income tax return for 2006. I used Schedule D Tax Worksheet. It ended up using the 25 percent tax rate on the depreciated portion, almost all of the capital gain. Did I make a mistake? —C. Y. |
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No, what you found on the worksheet is right. The federal tax on long-term capital gains is indeed no more than 15 percent. But that expense you claimed for depreciation while the property was rented must now be given back (recaptured). I guess the reasoning is that because you sold at a profit, it would appear the place didn’t really depreciate after all. At least, you once got to deduct that expense from income at your normal rates, and you’ll now repay it at a lower rate. |
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Edith
Originally published on April 1, 2007 |
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