Thank you for your question, and thanks for using JustAnswer.com.
So your basis in the home is $125,000 less the 21,000 of depreciation
So, an adjusted basis of $104,000
Selling costs are $8,050.
That leaves $2,950 in gains. This is attributed to depreciation recapture and you will owe tax on 25% of that
So my total tax liability would be $738 which includes capital gains and depreciation recapture tax.
You would owe tax on recapture at 25% of the gain
That would be your tax
If we had improvements done to the house example 4K, we would be at a capital loss correct? And then we don't pay and
any recapture depreciation either, correct.
That is correct
When there is a loss, there is no depreciation recapture
Can we include appliances,ac units etc that we depreciated as improvements
The AC Units would be improvements, but your appliances would not be. This would be like a new roof, new hvac systems, a kitchen remodel, things like that
Ok so if we spend 4500 on AC unit and depreciated example 2K of it. Do we use the 4K as improvement or the leftover 2500
The leftover $2,500
So you'd have $450 of gain, which is taxed at the recapture rate
House was horrible when we got it, so we had to do siding, new flooring etc. Would that be improvement. Also if we had capital loss, will that amount reduce gross income
Yes, the siding flooring etc would all be improvements If you had a capital loss, yes that would reduce gross income
great thank you so much. Do we need receipts of improvements or can we use pictures (before and after) as evidence
You need receipts or proof of the amount you spent. You could use bank records if you didn't keep invoices. You can certainly keep photos, but that doesn't prove how much you spent
So if our tax bracket was 25%, then we would pay capital gain tax correct if we had a gain.
The first $21,000 of gain would be taxed at 25%, then the remainder would be taxed at 15% if your tax bracket was 25%
Thank you so much for your help. I was so worried that we had to pay 25% recapture depre. tax on the 21K.
If there is a gain, the first 21K is taxed at 25%
You will not pay tax if there is a loss, because there's nothing to recapture
Is there anything else I can help you with today? If not, please rate my response "excellent" so that I may receive credit for assisting you today
Sure thanks again