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levr
levr, Tax Advisor
Category: Capital Gains and Losses
Satisfied Customers: 29497
Experience:  Working for a large tax preparation service
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How much capital gain will I have to pay if I sell a 4 Unit

Customer Question

How much capital gain will I have to pay if I sell a 4 Unit building that I've
JA: I'm not sure of the exact price, but there's only a $5 deposit. The rest of the price information will be on the page I send you to.
Customer: lived lived in for over twenty years. Sale price 1.1 mil. Acguired $262,000.00 1994
JA: I love the idea of making big money with investments, but there are so many things that could go wrong. The Accountant will be able to help you. Please tell me more, so we can help you best.
Customer: Senior citizen now low tax brackett
JA: Is there anything else the Accountant should be aware of?
Customer: no
Submitted: 9 days ago.
Category: Capital Gains and Losses
Expert:  levr replied 9 days ago.

Can you verify

- did you rent other 3 units?
- what is your accumulated depreciation?
- what are your improvement expenses?
- do you have any other taxable income?

Customer: replied 5 days ago.
The other 3 units are rentals, and have been since purchase 1994
I live in owners unit (3 bdrm) -vs_ rentals (3) 2 bdrm, 2 bath = 4 Units
I have no idea what the accumulated depreciation has been over 22 years
And cannot tell you how many improvements I've made.
My only income now is social security
Expert:  levr replied 5 days ago.

We need to treat units that are rental and the unit which is used as a personal residence as separate assets.

Both - purchase and selling price must be apportioned.

You may use any apportioning method that is reasonable.

Most often approach is based on sq footage.

But you may apportion based on the number of bedrooms if that is easier or more advantageous.

Using that method - we have 1/3 personal use and 2/3 rental use.
When we allocate the purchase price
$262,000 * 1/3 = $87,333 - will be the basis for personal use property and

$262,000 * 2/3 = $174,667 will be the basis of rental asset.

.

Similarly we will allocate the sale price.

Assuming you will sell the property for $600,000

$200,000 will be allocated to personal and $400,000 to rental .

.

Separately we will calculate the gain

For personal part

$200,000(selling price) MINUS $87,333(basis) = $112,667

That gain is excluded according to section 121

For rental part

we will estimate depreciation.

residential rentals are depreciated over 27.5 years

so your accumulated depreciation might be

$174,667(basis) / 27.5 * 22 = $139,734

thus,

$400,000(selling price) MINUS $174,667(basis) PLUS $139,734(accumulated depreciation) = $365,067

Most of that gain would be taxed at 15% rate.

That is just an illustration example.

Your actual amounts might be different.

Let me know if any adjustments needed.

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