Recapturing Depreciation

I own 25 rental properties and try to keep them long term but a move eight years ago constrained me to let go of a property. Due to market (and now I think a little ignorance) I sold it on a C4D. I held the property for 13 years and depreciated $65,000.00, I assumed that it would be recaptured at the closing of the C4D at the 5 year balloon date along with Capital Gains. Today she tells me I owe $35,000 to Uncle Sam! She states she’s 100% sure and nothing I can do about it. Is there any other route to take on this?

Your post is a little unclear on exactly when the C4D was executed. 8 years ago, 13 years ago, 5 years ago?

C4D is considered a sale by the IRS at the time the agreement is executed. Not the balloon date. This is nothing more than the agreed date when the buyer will payoff the mortgage.

The depreciation recapture is fully taxable in the year of sale.

However, C4D can be considered an installment sale, which would spread your cap gain out over the 5 years, with most taxable in year 5 with the payoff. Doublecheck that she’s got the sale on Form 6252. That’ll help you a little.

Thank you for that reply, it helped. We executed the C4D last year in May. I will ask my accountant about that 5 year recovery on the taxable part.