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New to property rental researching and I have a good understanding on the high level of property depreciation, as well as the eventual recapture process (25% flat rate federal).

My question is does the depreciation deduction carryover to state taxes, and must it be eventually recaptured by the state as well?

EDIT (again)

The state is New York. The comment below seems reasonable for the transfer of info from the federal return though. I'm not aware enough about the exact forms for recapture, but it is possible they also transfer to the state form as well.

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    What State are you asking about? – littleadv Jan 2 '15 at 5:32
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We'd have to know your specific state to give a definitive answer. In many U.S. states, they use the federal schedules to determine your income, in this case presumably a Schedule E. So you'd calculate your rental income on the federal schedule, and then there will be a place on the state form to post this number. Thus, in effect, the federal depreciation rules apply to your state income tax as well.

But without knowing what state your rental property is in, I can't say whether that is or is not how they do it there.

  • The state edit was made 2 hours before you answered. Just saying. – JTP - Apologise to Monica Jan 2 '15 at 23:58
  • Sometimes I start typing an answer, and then I get distracted by this job thing I'm supposed to do, and then I come back and finish it and post. :-) – Jay Jan 5 '15 at 14:28
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It does and it must, assuming the State has income tax.

New York doesn't have capital gains income tax, all the income is considered ordinary income and is taxed at the same (marginal) rate. Thus the "recapture" portion is meaningless. Depreciation reduces basis, and when you sell - the gains (including the portion that is considered "depreciation recapture" on the Federal level) are taxed by the State of New York as ordinary income.

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