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No recapture problem for donated real estate

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. If I contribute real estate to a charity, do I have to recapture depreciation deductions on the property? C.T.S., Reno, Nev.

A. Probably not. Under current rules,  a gain on the sale of depreciable real property held for more than one year is generally taxed at  a 25% maximum federal rate to the extent of any depreciation deductions claimed for the property. Any additional gain will usually be treated as long-term capital gain eligible for the 15% maximum federal rate. 

But these gains are not triggered by gifts of real property to IRS-approved charities. Caveat: Your charitable deduction will be reduced by the amount that would have been treated as ordinary income if the property had been sold (i.e., if you held the property for a year or less).


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