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Now filing 2008 tax return after extension. In 2008 I had about $35,000 income plus I sold rental property I had owned for many years. I realized about $160,000 after deducting sales costs and undepreciated basis.Is that income from the sale taxed at just the same rate as my other income?
State/Country relating to question: Texas Already Tried: Working with turbo tax
Hello lee,Your sale of the rental property is taxed as a long term capital gain, however, there are two different tax rates involved.The part of your gain which is attributable to the recaptured depreciation is taxed at a special rate of 25%. The remaining gain is taxed as a regular long term capital gain with a maximum tax rate of 15%. You will need to report the sale on Schedule D.To determine the actual tax liability, you would need to complete the worksheets on pages D-9 and D-10 of the instructions for Schedule D.http://www.irs.gov/pub/irs-pdf/i1040sd.pdfIf this was helpful please press the Accept button. Positive feedback is also appreciated.Thank you lee.
You have referred me to the instructions for Sch D, which of course I have been reading. One of the items that would eventually get me on course is learning if this is a section 1250 property. And is there any difference in selling simple property or in selling property that has been held for rental?
Hello again lee,Yes, your rental property is considered to be section 1250 property. Section 1250 property defined. This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. A fee simple interest in land is not included because it is not depreciable. Your rental property has been subject to an allowance for depreciation each year, which makes it section 1250 property. That depreciation must now be recaptured and it is taxed at a special rate of 25%, which is the reason the first worksheet is required.When you ask if there is a difference in selling simple property, I assume by "simple" that perhaps you mean your personal home or a vacation home. Personal property of that nature has never been depreciated, so there is no depreciation to reclaim. When you sell personal property, any gain you have is strictly taxed at the maximum capital gains rate of 15% because there is no depreciation which is taxed at a separate rate.If this was helpful please press the Accept button.Thank you lee
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad