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Merlo
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 caculate capital gains tax on the sale of property

Resolved Question:

How do i caculate capital gains tax on the sale of property which cost $162,000 to purchase plus improvements of $100,000 and will sale for $650,000?$35,000 of the sale price I am putting back into the improvements of the property. Property tax has averaged $5000/yr. $20,000 in repairs and $66,000 in insurance premiums. Purchased in 1965 and will sale in december 2009.
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

HelloCustomer

 

There are several other factors which affect the capital gains tax.

 

1. Was this rental property?

 

2. Was this a home that you have used as your primary home (owned for at least 2 years and lived in for at least 2 of the last 5 years)?

 

 

Customer: replied 4 years ago.
Yes this is commercial rental property
Expert:  Merlo replied 4 years ago.

If this was rental property, then can you tell me how much depreciation you have claimed on your tax returns since owning the property?

 

 

Customer: replied 4 years ago.
I don't have that info in front of me now. What is used to determine depreciation?
Expert:  Merlo replied 4 years ago.

Hello againCustomer

 

When you own rental property, one of the expenses that you claim each year is depreciation on the property. Commercial rental property is depreciated over a period of 39 years. So if you paid $162,000 for this property, then you should have claimed a depreciation amount of $4,154 each year ($162M divided by 39). Since you purchased this property 44 years ago, then you would have fully depreciated the property by now, so that has to be figured in to your capital gains.

 

The repairs, real estate taxes and insurance premiums you paid over the years would not figure in to this, because those should have been expensed each year. To figure your gain on rental property, you need to take the selling price, less your basis.

 

Your basis in this property is the $162,000 that you paid for it plus the $135,000 you made in improvements, or a total of $297,000. Now you need to deduct from this the depreciation you claimed, which should be the full $162,000 since you have owned the property for more than 39 years. So your basis is now reduced to $100,000.

 

If you sell the property for $650,000, you deduct your basis and have a gain of $550,000.

 

On that gain of $550,000, the $162,000 that is attributable to your depreciation recapture is taxed at a special rate of 25%. The remaining gain of $388,000 would be taxed at the long term capital gains tax rate of 15%. So I would estimate your total tax on the sale to be $98,700.

 

You will need to check your actual depreciation figures as you may have claimed additional depreciation for the improvements you made, and I would have no way of calculating that amount since I do not know when those improvements were made and how much depreciation you may have claimed up until this time.

 

If this was helpful please press the Accept button. Positive feedback is also appreciated.

 

Thank youCustomer/p>

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 9 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
if the full $162,000 is deducted from my claim why wouldn't the basis be $135,000
Expert:  Merlo replied 4 years ago.

Hello againCustomer

 

You are absolutey correct. I had a typo in my first response. Your basis would be $135,000. So your gain would actually be $515,000.

 

You would still pay 25% on the depreciation part of $162,000 and then 15% on the remaining $353,000. This would change your estimated tax to $93,450.

 

Sorry for the miscommunciation.

 

Customer: replied 4 years ago.

No problem. Thanks for your info!!

Expert:  Merlo replied 4 years ago.

Thank you nk

 

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