sale of land improvement, 150DB

I think this is a Lacerte issue. Hopefully it is not a situation of me misunderstanding basic concepts.

Land improvements are 1250 property. They are also eligible for 15 year 150 DB depreciation. When the asset is sold, it seems to me that there is 1250 depreciation recapture taxed as ordinary income under 1250(a)(1)(A) to the extent of accumulated depreciation less what would have been deducted using straight-line. The rest of the accumulated depreciation is unrecaptured 1250 depreciation.

Lacerte won't do this calculation. My asset is coded "66" in Lacerte. This is the 15 year 150 DB depreciation. Lacerte first assumes that this property is 1245 property based upon the depreciation code and treats all of the accumulated depreciation as subject to ordinary income rates. If I then code the asset as a 1250 asset, then Lacerte assumes all accumulated depreciation is 1250 recapture - ordinary income. The only way that I can get Lacerte to do this calculation is to use 80 for the depreciation code (ACRS 15 year % RE), which seems crazy for an asset placed in service in 2018, and the calculation doesn't look right anyway.

Am I doing something wrong in the software, does Lacerte really have this limitation, or have I misunderstood basic concepts of recapture?

Thanks.

Maybe bifurcate the asset?

One asset that represents the ordinary income, coded as a 1245 asset.

The other asset coded as a 1250 asset. that would be the 1250 gain.

You'd probably have to do most of the legwork in an excel workpaper.

As long as I am not delusional that yes, it needs to be done, and yes, Lacerte is not doing it.

I just ran a test scenario in Drake. Drake has a box in the fixed asset screen (sale area) to enter an amount for line 26a (4797), and it calculates and flows correctly to page 1 of the 4797. Maybe Lacerte has one. Might need to call support.

I am pretty sure the ordinary income recap applies to land improvements, others will weigh in. Good luck.

I think your understanding is correct. I know that there is a box where you can override the amount of depreciation that needs to be recaptured over the SL method. It is under the sale of asset section, miscellaneous section.

For what Lacerte costs, you would think it should be able to calculate and handle correctly though.

Lacerte has a box under the "4797" section that says "1=recapture excess over SL, ...". I thought this may work for you until I read the help on this field.

ENTER
1 - Recapture the excess of accelerated depreciation over straight-line.
2 - Recapture the entire amount for nonresidential real property for which you depreciated using an accelerated method.
3 - Recapture no depreciation. Make an entry in "Blank If 1245, 1 If 1250, 2 If 1252, 3 If 1254, 4 If 1255" (Screen 16, code 87) to indicate the type of property, if not section 1245.
Amount up to gain on the sale - Override the automatic recapture calculations.

The program:
• Recaptures all depreciation for section 1245 personal property based on MACRS methods (34-69) and ACRS methods (30-63) entered in "Method (Table 3)" (Depreciation Screen, code 4).
• Does not recapture depreciation for section 1250 real property (methods 85 and 87) or straight-line methods (71, 81, 89, and 83).
• Recaptures the excess of accelerated depreciation over straight-line for ACRS accelerated real property methods (70, 80, and 82).
• Assumes that all nonrecovery methods (91-96) are section 1245 personal property and, therefore, recaptures all depreciation.
• For section 1245 nonrecovery property, the program recaptures all depreciation. For section 1250 nonrecovery property, the program recaptures the excess of accelerated over straight-line depreciation.

This says Code 66 (15-yr %) & 67 (15-yr SL) are automatically treated as Sec 1245 property. Putting the "1" in the "This is 1250 property" box does nothing to change this.

Clearly, Lacerte punted on this.

Just do like I always do and force no recapture.

But Wiles, there is recapture. I will have to manually calculate it. As Seaside said...for what Lacerte costs....

Anyway, thanks everyone. I was second guessing myself since Lacerte was not doing the calculation.

My client's land improvements go down in value. Only their land goes up.

Hilarious. I get it. Client took bonus depreciation last year on a $400k asset, not realizing that the tenant was going to split in advance of the expiration of the lease, and now they just want to sell the property. Hard to justify zero value for the land improvement put in service last year.

Oh yeah. That's a different story vs taking the 150% over 15 years.

Did they get a lease termination fee? Do you claim lease termination fees as capital gain?

Why is this discussion in Bus Op?

I started it here because my focus was on making Lacerte do the 1250 depreciation recapture calculation.

They did not get any lease termination fee. The tenant just split.