Hello. I recently sold 2 long terms real estate investment properties. One was purchased at $123,000 and we spent about $20,000 to fix it up. We sold it for $190,000 (after deducting closing costs) for a profit of $47,000.
The second property was purchased fror $175,000 and we paid $56,000 in repairs before selling it for $306,000 (after closing costs), for a profit $75,000. We made a total profit of $122,000 for the 2 properties sold. We oned these properties for 9 years.
Our state income tax
in NJ is 8%, so added to the federal rate of 15%, we are expecting to pay 23% in taxes
on the gain. Would our capital gains taxes be a straight 23% of the total profit amount ($122,000 X .23 = $28,060) for , or will the depreciation that we had taken over the years of ownership be added into the equation somehow? I heard somewhere that past depreciation would be added back in to increase the size of the gain. Is that true? If not, did I accurately calculate our tax amount? Thanks!