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Lev
Lev, Tax Advisor
Category: Tax
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Hello, I was a non-filer from 2000 to 2006, the same years

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Hello,
I was a non-filer from 2000 to 2006, the same years I owned a rental property.
I sold the property in July 2006 and the IRS just sent me a form 4549 which, of course, shows an outrageous amount owed.

Details:
I built the property in '99 and spent $200,000 cash (no improvements since).
In January 2000, I took out a small mortgage loan, about $100k.
I inherited the land which was valued at $150,000 at the time of the sale.
The property sold for $362,000.

Except for 2006, I've recently filed my late returns but didn't include the depreciation on the rental property from 2000-2005.

On my 2006 return, the year I sold the property, do I need to include the depreciation for each of those five years? How will the IRS calculate the depreciation recapture?

LEV :

Hi and welcome to Just Answer!
You should be able to proof your basis - and need to separate the basis of the land which is not depreciable and the basis of the building.
The basis for the inherited land - is a stepped up basis equal to its fair market value at the time the decedent passed away.

LEV :

For purposes of depreciation recapture - you should follow IRS regulations - when the property is sold - you must "recapture" depreciation that is "allowed or allowable”. Depreciation that you have actually deducted on your tax returns (and was not disallowed by the IRS) has been “allowed”. Depreciation that can be deducted on a tax return is “allowable”.
So far - the larger of these - "allowed or allowable” must me recaptured - but not more than your actual gain.

Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

Hi and welcome to Just Answer!
You should be able to proof your basis - and need to separate the basis of the land which is not depreciable and the basis of the building.
The basis for the inherited land - is a stepped up basis equal to its fair market value at the time the decedent passed away.

For purposes of depreciation recapture - you should follow IRS regulations - when the property is sold - you must "recapture" depreciation that is "allowed or allowable”. Depreciation that you have actually deducted on your tax returns (and was not disallowed by the IRS) has been “allowed”. Depreciation that can be deducted on a tax return is “allowable”.
So far - the larger of these - "allowed or allowable” must me recaptured - but not more than your actual gain.

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