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Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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How do I calculate the approximate capital gains tax on a piece

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How do I calculate the approximate capital gains tax on a piece of land? We have a 1.5 acre lot in a gated community that we want to sell, but we're trying to figure out if we should do it now - in a bad market - or wait. We're 61 and 63 and still working - but the proceeds are a fair piece of our long term retirement pot. We paid $105K and could probably get $375K now. We've had it for 11 years and have "improved" it (i.e. it's in the Sierra foothills so we did an initial clearing, plus did two treatments for poison oak) to the tune of about $3K. We also pay association dues of $700/yr and county taxes of $1300/yr. I don't need precise numbers, but I'm trying to get some idea ofwhat investible proceeds we would get from the property.

Thanks for your help.

Priscilla Joyce
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Hello George,

If you paid $105,000 for the land and added another $3,000 in improvements, then your basis would be $108,000. The dues you paid and county taxes would not enter in to figuring any gain and they would not add to your basis.

If you sell the property for $375,000 and you have a basis of $105,000, you would have a capital gain of $270,000. This would be taxed as a long term capital gain at a rate of 15%, or a total of $40,500. That would be the federal taxes due. In addition, you would owe CA state taxes at a rate of approximately 9%, for a total of $24,300.

There are talks in Congress and strong possibilities that the capital gains tax rate may increase next year to 20%, so you may want to consider selling the land in 2009 while the current long term capital gains tax is still capped at the 15% level.

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Thank you George.

Customer: replied 7 years ago.
I've heard the same thing about the possibility of a capital gains tax rate increase, but my understanding is that it would be passed in 2010 and begin January 2011 - not true?
Expert:  Merlo replied 7 years ago.
Hello again George,

Currently, the law is in place which allows the current rate of 15% to be in place until the end of 2010. However, Congress has the power to overturn that current law and replace it with new rates. No one know for certain what year they may choose to enact new rates, but they do have the authority to change it to apply to 2010 rates. And given the current state of the budget deficit, it is very possible they may make this increase next year.

If this was helpful please press the Accept button.

Thank you George, and let me know if you have more questions.

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