Residential Real Estate Tax Issues with 1031 exchanges

Residential Real Estate Tax Issues with 1031 exchanges

Residential Real Estate

If you depreciated residential pre-1987 realty using just straight line depreciation, the tax results if you sell it will be the same as for a sale of post-1986 property, as described above. But if (as was possible) you, at any time, used a declining balance method to depreciate the real estate, the gain on sale would be taxed as follows:

gain, to the to the extent of the depreciation claimed that exceeds what would have been allowable under straight-line depreciation, will be recaptured as ordinary income, and, thus, taxed at rates as high as 35% in 2003 and later years ("ordinary income rates") (but the amount of excess depreciation subject to recapture may be less for certain low-income housing).

gain, to the extent of the depreciation that isn't recaptured as ordinary income, will be taxed at a rate of 25%.

the balance of the gain will be taxed at a rate of 15%.