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Tax breaks for recaptured depreciation

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in Small Business Tax

Q: I own a rental home that I could sell for $100,000. Excluding land, I have depreciated $20,000. I know I have to recapture the $20,000 depreciation at 25 percent. Does it matter if I am in the 15 percent tax bracket? I.G., Louisville, Ky.

A: Yes. The recapture rate for rental real estate for investors in the 15 percent federal income tax bracket is limited to 15 percent. The maximum 25 percent federal rate for depreciation recapture applies to taxpayers in the higher tax brackets. So, you owe $3,000 tax on this portion of the sale (15 percent of $20,000). Tip: Investors in the higher tax brackets (28, 33 and 35 percent) can save tax with the maximum 25 percent rate.

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