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From:  John
Date:  27 Apr 2006

I believe an article that I read on your site is misleading. Isn’t 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

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

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