Hello and thank you for using Just Answer,Almost everything you own and use for personal or investment purposes is a capital asset. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss.
The gain on the sale will be a short term gain and will be subject to capital gains tax.
Is there any way to reduce the cost or a way around it such as a property exchange?
In addition, high income taxpayers may have a 3.8% unearned income Medicare contribution tax applied to their capital gains and other net investment income.
You could do a 1031 exchange. This would defer the gain till the replacement proeprty was disposed of.
Disposed of? What is the current capital gains tax rate?
Disposed of (ie; sold)
In my situation I would have to pay taxes on the potential 40K in profit?
The rates are dependent on your filing status and income. Short term rates are taxed at your regular rate.
That is correct. It is the gain (difference in basis and sale price ) that is taxable
Thank you you have been very helpful.
You are most welcome