4797 not treating depreciation at ordinary tax rate

[David]

TP sold rental real estate. He has a $48K gain and has taken $15K depreciation over the years.

He has a loss carryforwar of $30K on his 2009 Sch D.

Form 4797 is reporting the full gain as long term on line 6 and carrying that to Sch D to be netted against the $30K loss carryforward resulting in $18K long term capital gain.

Is the ATX program handling this correctly? I thought $15K of the gain should be taxed at the ordinary rate and the remaining $33K would be taxed at the long term cap. gain rate. Also, I didn't think the rental property gain from sale would be netted with Sch D loss carryforwards. I thought the gain would be reported strictly on Form 4797 and reported on Form 1040 line 14.

Another issue - allowed depreciation is $28K and only $15K has been taken. The "allowed depreciation" on line 22 of Form 4797 links to the accumulated depreciation for the property. I can't determine how to change that number to the allowed depreciation number - other than overriding it. Can anyone help me on this?

I know that there is a reg. that allows a TP to include the difference between the allowed depreciation vs. the depreciation taken all in the year of sale on Schedule E. Can anyone help me with the mechanics of how to do this? In this case, is the full $13K additional depreciation taken on line 18 "Other" of Schedule E? What description should be used? Also, does Form 3115 (change in accounting method) have to be filed in order to take this deduction?

Thanks for your help.

[Pacun]

I am only answering a portion of your question.

It is done in the back ground. Reduce the gain to 0 and see the effect. Then, make 10K profit and you will see it is taxed as ordinary income. Then make the profit $15K and you will see that $15K becomes ordinary income. Increase the profit from $15K and you will see that the portion above $15K will be taxed as capital gains.

[OldJack]

>>

TP sold rental real estate. He has a $48K gain and has taken $15K depreciation over the years.

He has a loss carryforwar of $30K on his 2009 Sch D.

Form 4797 is reporting the full gain as long term on line 6 and carrying that to Sch D to be netted against the $30K loss carry forward resulting in $18K long term capital gain.

Is the ATX program handling this correctly?<<

This is correct as this is real estate sec. 1250 property and only accelerated depreciation (up to gain) is taxed as ordinary. SL depreciation on real estate is not recaptured as ordinary gain.