Lana owned a house used as a rental property for three years.During this rental period,she took $60,000 of depreciation deductions.Lana moved into the house and has used it as her principal residence for the past two years.Lana has just sold the house and realized a $200,000 gain.She will recognize gain of
A)$0.
B)$60,000.
C)$200,000.
D)$144,000.

Question

Quizplus · Accepted Answer

Since Lana used the property as a rental property for three years and took $60,000 of depreciation deductions, the property is subject to the recapture of depreciation. This means that Lana must pay taxes on the amount of depreciation that she claimed during the rental period.

The amount of recaptured depreciation is equal to the lesser of the depreciation taken or the gain on the sale. In this case, the amount of recaptured depreciation is $60,000.

Since Lana also used the property as her principal residence for the past two years, she can exclude up to $250,000 ($500,000 if she is married filing jointly) of the gain on the sale from her taxable income.

Therefore, Lana will recognize gain of $200,000 - $60,000 = $140,000. Since this is less than the $250,000 exclusion limit, Lana will not owe any taxes on the sale of the property.

The closest option is D, which represents the amount of recaptured depreciation ($60,000) subtracted from the total gain on the sale ($200,000).

Lana Owned a House Used as a Rental Property for Three