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Is residential accumulated depreciation taxed as ordinary income?

September 13, 2006


From:  John
Date:  27 Apr 2006

I believe an article that I read on your site is misleading. Isnít gain up to the accumulated depreciation for a residence taxable as ordinary income?

Answer

Date:  05 May 2006

Hello John,

No. It is long-term capital gain taxed at a special tax rate. Assuming the residence has been held more than one year, the (straight-line) depreciation is subject to tax at a higher rate (25%) than other long-term capital gains (15%). Generally, the gain up to the accumulated depreciation is not eligible for the exclusion for sale of a principal residence.

Good luck!
Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

Is residential accumulated depreciation taxed as ordinary income?

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