Selling Property
Don’t be too quick to judge…
Many tax advisors believe that the benefits of accelerated depreciation are limited by recapture gains and subsequent taxes when a property is sold, and that it also creates conflicts to 1031 Exchanges. Although a fact that depreciation must be recaptured when certain assets are sold for a gain, a specific examination and calculation of the numbers reveals that cost segregation yields results in almost every circumstance, and 1031 Exchanges create no conflicts.
Managing depreciation recapture for a tax benefit…
The IRS states in Pub 544, Chap. 3, “When you dispose of depreciable property (§1245 property or §1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules.”
The IRS also states in its Form 4797, “If you disposed of both depreciable property and other property (for example, a building and land) in the same transaction and realized a gain, you must allocate the amount realized between the two types of property based on their respective fair market values (FMVs) to figure the part of the gain to be recaptured as ordinary income because of depreciation.”
If managed properly with an RPTI Disposition Analysis, depreciation recapture gains are substantially reduced.
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