Installment Sale of residential rental

[fredr]

Does client have to recapture all deprecation taken over the years in the year of the sale. If so how is that done? It’s not showing on 4797 or installment sale form.

[taxiowa]

I believe only section 1245 property is automatically recaptured (taxed) in year of installment sale.  You have 1250 residential property sold which would be recaptured over life of installment agreement.

[Norman2001]

I believe that §453(i) says that all the depreciation is recognized in the year of sale for both §1245 & §1250 assets. 

[fredr]

when i do sale of rental house on asset entry work sheet and attach it to form 6252 it is not recapturing total depreciation taken over the years. If i have to report it in year of sale how is this done in pro series?

[taxiowa]

I believe that 1250 recapture on year of installment sale only occurs if you took an accelerated depreciation method which has not been available for residential property in quite a while.  I can look into this later.

[fredr]

Thanks i would appreciate that.

[fredr]

The recapture of previous depreciation on rental house is not showing up on form 4797. I reported the sale on the asset worksheet and linked it to form 6252 installment sale. No recapture is showing up on line 12 of form 6252 either. What am i doing wrong?

[fredr]

when i report sale of rental house on asset entry worksheet and link to installment sale 6252 it does not recapture all the prior depreciation on form 4797. Does prior depreciation need to be reported in year of sale? the program is not recapturing it , what am i doing wrong.

[TaxGuyBill · Accepted solution]

As @taxiowa  said, only "recapture" would be fully taxable in the first year of the Installment Sale.

For real estate (§1250 property), "recapture" is based on depreciation in EXCESS of Straight-Line depreciation.  That would be extremely rare for a rental of a residential rental property.

The gain due to Straight-Line depreciation is "Unrecaptured Section 1250 Gain".  That is NOT the same as "recapture".  And "Unrecaptured Section 1250 Gain", is NOT fully taxable in the first year of the Installment Sale.

Because you only took Straight-Line depreciation, there is NOT any "recapture", so that is why it is not showing as fully taxable in the first year of the Installment Sale.

[fredr]

thanks tax guy bill

[fredr]

thanks

[PATAX]

@fredr @TaxGuyBill @taxiowa @Norman2001 just make sure you enter all of the information on the correct worksheet and in the correct location. I give Pro Series credit, as they have always done an excellent job on this, and I usually have this every year. Just my opinion.