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USTaxAdvising
USTaxAdvising, CPA
Category: Tax
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Experience:  US Taxation specialist.
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Capital gains on a home I purchased in Red Bluff Calif. I

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Capital gains on a home I purchased in Red Bluff Calif. I paid 165,000 for the home 8n August 2011, And plan to put it on the market for 295,000 . 40,000 i n home renovations

USTaxAdvising :

Hello, Thank you for using justanswer. I can assist you with your questions today.

USTaxAdvising :

Is this investment property?

USTaxAdvising :

Did you rent it?

Customer:

Yes the property has been rented since August of last year.

Customer:

Yes this is an investment property

USTaxAdvising :

OK - so do you know what your tax bracket is going to be for 2013? Are you in the 39.6% bracket?

Customer:

No I Am a widow with an income of about $39,000 for 2013.

Customer:

Will I be taxed a California Tax being a resident of the state of Washington?

USTaxAdvising :

Ok, you will most likely not be in the highest marginal tax bracket with a gain on sale of approximately 90K.

USTaxAdvising :

If the property is in California then California will tax a gain on sale since the property is domiciled there.

Customer:

So what is the Federal tax and what in the Tax to the state of California with the sale?

USTaxAdvising :

How long have you owned the property?

USTaxAdvising :

More than a year?

Customer:

It will be 2 years in August

USTaxAdvising :

Ok all the depreciation you have claimed will be required to be "recaptured" at your highest marginal tax rate which I expect to be approximately 25%. (Federally) and approximately 9.3% CA State.

USTaxAdvising :

The actual gain will be taxed at 15% federally and 9.3% CA state.

Customer:

I rent the home for $1200 a month with a new profit of about $700.00 I paid cash for the home and would like to add to the profit on the home towards my retiremenet money.

USTaxAdvising :

so assuming you sell the property at 295K and have a cost basis of 205K your gain could be as high as 90K. Thus taxed at 15% federally (13.5K) and 9.3% CA State (8,370)

USTaxAdvising :

I rent the home for $1200 a month with a new profit of about $700.00 I paid cash for the home and would like to add to the profit on the home towards my retiremenet money. - OK...I don't really understand what the new profit is but you can certainly add any profits to your retirement savings.


USTaxAdvising :

I don't really understand your question on your last point

Customer:

So that is $13,500 federally ande $8,370 to the State of Calif. The Cost of selling home will be around $28,000.

USTaxAdvising :

Ok that will drive the taxable gain base down by 28K.

USTaxAdvising :

new figures would be federal 9.3K and state 5,766

Customer:

So if I understand you that will be a net gain of $52,000?

USTaxAdvising :

62,000, not 52,000

USTaxAdvising :

before taxes

Customer:

I guess my next question is how do I go about getting around these taxes?

USTaxAdvising :

Well, the only way to mitigate 100% of the tax would be to buy another property with the proceeds from this property. This is known as a 1031 exchange.

USTaxAdvising :

There are strict rules that I won't get into detail here but this is one method to dispose of real estate, but you have to buy another real estate property.

USTaxAdvising :

If you don't want to buy another property there is really no way to avoid the taxes...

Customer:

Thank you but I have a home in San Diego and One in Washington and I don't want another rental property.

USTaxAdvising :

Yeah, then I don't really see any other way to dispose of the property and also mitigate tax consequences..

Customer:

Thank you for your time.

USTaxAdvising :

No problem. Glad I could help.

USTaxAdvising :

If I have answered your question please leave a rating or accept my answer when you have a moment.

USTaxAdvising :

Thanks!

Customer:

What is the tax percentage for the 2013 Medicare Tax?

USTaxAdvising :

3.8% but it only applies to those folks in the highest tax bracket (39.6% bracket)

Customer:

I am not in the high tax bracket . Thank you for that information.

USTaxAdvising :

That's right, we confirmed that in the chat above thus your capital gains rate is only going to be 15% not, 18.8%

Customer:

I would give a rating of 92%

USTaxAdvising :

OK well can you do it in just answer? There is a way to give a rating to close the question and then I get credit.

USTaxAdvising :

Thanks!

Customer:

You have answered my questions and I accept your answers.

USTaxAdvising and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
Listing the house for 269,000 what would be my capital gains.

Hello Darlene,

 

If you sold it for 269,000 your net capital gain would be 64,000. Of this gain you would be required to "recapture depreciation" to the extent you have deducted it in prior years. Any remaining gain would be taxed as per rates above 15% federally and 9.3% state. Therefore on 64,000 (assuming no depreciation recapture) your federal capital gain tax would be 9,600 and your state tax would be 5,952.

 

Assuming you have depreciation taken in prior years of say 15,000 it would be taxed at your highest marginal tax rate. The remaining capital gain of 49,000 would be capital gain (64,000-15,000=49,000)

 

I hope this makes sense. Depreciation recapture is somewhat complicated until you understand the mechanics of the "recapture". See article here on it: http://taxes.about.com/od/capitalgains/qt/recapture.htm

 

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