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CGassist.168, Accountant
Category: Capital Gains and Losses
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Experience:  Tax Accountant
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Sister & I inherited commercial property after death of mother

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sister & I inherited commercial property after death of mother appraised at time of her death on Dec. 23, 1996 for $125,000. Have offer of $575,000. What will be capital gain tax and can any gain be off set if another property is purchase after sale. The location of the
property is in Atlanta, Dekalb County, Georgia
Submitted: 2 years ago.
Category: Capital Gains and Losses
Expert:  CGassist.168 replied 2 years ago.
Thank you for contacting us today. My name is ***** ***** my goal is to efficiently assist you with your Capital Gains matters.
Q: What will be capital gain tax and can any gain be off set if another property is purchase after sale.
A: The gain amount is $450,000. The gain amount is taxed at 20%.
$450,000 x 20% = $90,000 tax.
There is also the depreciation recapture to keep in mind. SEE BELOW:
When your adjusted cost basis is reduced through depreciation, you incur a future tax liability. When you sell the property for more than the adjusted cost basis, you will be taxed at two different rates, depending on your annual income and on the amount of profit you receive from the sale. Profits are taxed both two different rates: "depreciation recapture" (25%) and capital gains (either 15 or 20%, depending on your annual income). Depreciation recapture occurs because you benefited from depreciation deductions that offset your ordinary income over the course of your ownership; therefore, upon a sale, the government taxes that profit at a rate that is higher than the capital gains rate. The amount of profit subject to depreciation recapture is limited to the sum of depreciation deductions you took. Any profit above the depreciated amount is taxed at the more-favorable capital gains rate.
IRS Pub 944 will also be beneficial for you and your sister to reference.
Link to PUB 544:
Q2: can any gain be off set if another property is purchase after sale
A2: Yes, capital gains can be deferred if you do a 1031-Exchange. SEE BELOW:
Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.
The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.
Who qualifies for the Section 1031 exchange?
Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.
What are the different structures of a Section 1031 Exchange?
To accomplish a Section 1031 exchange, there must be an exchange of properties. The simplest type of Section 1031 exchange is a simultaneous swap of one property for another.
Deferred exchanges are more complex but allow flexibility. They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties.
To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction). Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations.
If you decide not to do a Section 1031- Exchange, you may also consider an installment sale. IRS Pub 537 provides more detailed information regarding installment sales.
Link to Pub 537:
Let me know if I can be of further assistance to you regarding this matter.