When you sell a rental property, part of the depreciation is subject to recapture. Normally real-estate is depreciated on what is called the Straight line method. However, there is also the MACRs straight line method which calculates depreciation a slightly higher percentage. So Stephanie was correct that you do have to recapture the depreciation amount this is more than straight line depreciation.
Depreciation recapture is the difference between your cost basis and your adjusted basis. Your adjusted basis is the cost basis less all depreciation allowed or allowable. Long-term capital gain is the difference between your selling price and your cost basis for assets owned for more than one year.
For example, if the property cost you $30,000 originally and you depreciated it down to zero (you shouldn't have depreciated the part allocable to land but let's assume you did) your adjusted basis is zero. If you sell the property for $100,000 net, $70,000 would be long-term capital gain and $30,000 would be recapture.
From the details you provided, you have a reportable loss. So if the depreciation was done on the straight line method, which I am going to presume it was...then you loss is the $49,000 plus any attorney costs, etc.. for the short sale. If you have to recapture any of the depreciation, you will still have a loss. You need to find out what method was used to depreciate the property. Since your accountant told you it was recapturable, it may be that he did use the straight line method...however, with that said, the MQACRS real estate method is not that much more aggressive. So I disagree with your accountant. Maybe some of it is, but not all, unless he did use the real estate code for depreciation.
Can you find out what method of depreciation was used...and what date it was placed in service and the date you sold it on short sale.
As to the two owners on title, yet only one took the write off for the property. The owner who has taken no write off will report the 1099-S for $100,000 and show it as passed through to you, your social security number. I.E. - Mr. Smith- Schedule D- Sale of Ha Rental Property - proceeds $100,000...Cost $100,000..net zero. Now you need to show the entire $200,000 sales price on your return. Your partner may also attach a supplemental statement that states: Sale Of Hawaii Rental Property- 1099-S received for $100,000 was a nominee distribution to your name and social security number. Their accountant should know how to handle this.
So I wait your reply in how the property was depreciated so I may assist you in calculating you actual recapture and loss on the property.
Thank you for allowing me to assist you.
Robyn L. Wysong, EA