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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13339
Experience:  15years with H & R Block. Divisional leader, Instructor
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We have purchased a property in Bothell, last year Oct 2014

Customer Question

Hi,
We have purchased a property in Bothell, Washington last year Oct 2014 for 155 K (180 K Including improvements costs) and we are planning to sell this property for 300 K since the market went uptick and buyers are showing up. When we brought this property, our intention was to build a new home and stay. But we are seeing lot of cost involved to make this happen. Also, we are never been there in that property after purchasing it.. because its rotten home and cannot stay in that property.
However, we are not sure about the following questions:
1. Does this sale considered as regular sale
2. Does this sale considered as investment?
3. Do we need to pay an extra taxes on the profit? If yes what are they? Detailed would be appreciated.
4. Since this is below 2 years on owning the property, does it have any complications on selling in terms of income tax..
Thanks,
-Ashok Kumar T
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello,

1. Does this sale considered as regular sale

The sale of the property would be the sale of a capital asset. If you hold for longer than 1 year it is longterm and you are allowed the lower capital gain rates for tax.

2. Does this sale considered as investment?

Yes it could be an investment.

3. Do we need to pay an extra taxes on the profit?

You usually realize gain or loss when property is sold or exchanged. A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. You would pay tax on the gain

If yes what are they?

This depends on the holding period. If one year or less then the rate is ordinary (same as your regular tax) if longterm holding, the rate depends on your total income and filing status. The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you are in the 10% or 15% ordinary income tax brackets.

4. Since this is below 2 years on owning the property, does it have any complications on selling in terms of income tax..

Yes, if you sell before it is long term holding, you will pay tax at regular rate of tax. Regular rate is generally higher than capital.

Customer: replied 1 year ago.
I am not clear on this answer:
The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you are in the 10% or 15% ordinary income tax brackets.what do you mean that I am 10% or 15% ordinary income tax brackets, currently I am earning 110 k per year from my job, does it also include?or since this is my first property purchase and sale, does this need to include in my income pay 30% income tax?my friends recently sold there properties and they mentioned that they did not paid any taxes for there cap gain and not included in there income when filing the taxes.Please make me understand on filing the taxes for this.
Expert:  Robin D. replied 1 year ago.

If you sell before you have held for 1 year and 1 day (long term held) the you would add the gain (difference in purchase plus improvements and the sale price less cost to sell) to your regular income for the year.

You will be taxed on all that at your regular rate of tax for your filing status. If your basis is $335,000 (cost $155k plus improvements $180K) and you sale for $300,000. You would have a loss.

If you meant that with the cost of $155k you added improvements $25K for the $180K then you have a gain of $290K which you would add to your regular income for the year.

You must report the sale but you would not have tax to pay if you have a loss.

If your friends did not have to include the sale that would have been because it was their main home. This was not your main home. You never lived in the property.

The time you hold the property (for your situation) determines if you pay capital gains tax on the gain or regular tax rate on the gain.

Expert:  Robin D. replied 1 year ago.

Please advise if you need more information or rating in a positive way is acceptable.