Are there any changes to depreciation recapture rules?
A. No. Generally, when selling investment real property, a tax is imposed on all amounts previously taken as depreciation. Under prior law, these amounts were taxed as ordinary income and not capital gains. The 1997 Act provides for a 25 percent maximum tax rate on any gain attributable to depreciation already claimed on the property in the case of real property for which the maximum tax rate is reduced to 15 and 5 percent. Although there was an effort to reduce the recapture rate, no reduction materialized. Example: Ms. Seller purchases a triplex for $200,000 after January 1, 2001, and takes depreciation deductions of $50,000 over the six years she owns it. She sells the duplex for $300,000. Her basis in this property is reduced to $150,000 because of her deductions for depreciation, and she would have a $150,000 gain. Under the 2003 Act, she would be taxed at a 15 percent (or 5 percent) rate on the $100,000 portion of gain over her original $200,000 basis and at a 25 percent rate on
