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levr, Tax Advisor
Category: Capital Gains and Losses
Satisfied Customers: 29573
Experience:  Working for a large tax preparation service
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What percentage of taxes do I have to pay on the sale of my

Customer Question

what percentage of taxes do I have to pay on the sale of my second house which I rent. The house owes $143,000 and I'm selling it for $170,000.
Submitted: 1 year ago.
Category: Capital Gains and Losses
Expert:  levr replied 1 year ago.

Assuming the property was owned more than a year - the gain will be taxed at reduced long term capital gain rates - for most taxpayers - not more than 15%.
State income tax is extra depending in which state you live and in which state the property is located.
ONLY the gain is subject to income tax.
To determine the gain - we need to determine your basis - that is generally your purchase price assuming the property was purchased.
That basis is adjusted by improvement expenses (added to the basis) and depreciation (subtracted from the basis) and some other items.
The balance of your mortgage is not relevant for calculating the basis.

The gain is determined as (selling price( MINUS (selling expenses - broker fees, etc) MINUS (adjusted basis)

So - the fist step is to find your basis
then - to calculate the gain (if any)

and finally we may estimate your expected tax liability.

Customer: replied 1 year ago.
the state is Florida and the home was purchase for $51,000 back in 2003
Expert:  levr replied 1 year ago.

Your original basis is your purchase price $51,000.

Then you pointed out having a mortgage balance $143,000 - that most likely because you refinanced - correct?
So we need to know how the loan proceeds were used?
If used for improvements - that amount is added to the basis, but whatever you used for personal or other reasons woudl not affect our calculations.
Assuming you used $20,000 on improvements - so your adjusted basis becomes $51,000 + $20,000 = $71,000.

Now - because the property was converted to rental - we need to know your accumulated depreciation.

Residential rentals are depreciated over 27.5 years.

So if the property was rented for 12 years - accumulated depreciation would be estimated as $71,000 / 27.5 * 12 = $30982

and your adjusted basis will be $71,000 - $30982 = $40018

Thus we may estimated your gain on the sale

$170,000(selling price) - $40018 (adjusted basis) - $10,000(selling expenses - estimated) = ~$120,000

That will be your taxable gain - and will be taxed as long term capital gain at reduced rate because the property was owned more than a year.

The rate will be up to 15% for most taxpayers - but may be 20% for high income persons.

There is no income tax in Florida

So rough estimation for your federal income tax liability based on assumptions above could be $120,000 * 15% = $18,000.

Any questions?

Expert:  levr replied 1 year ago.

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I am here to help you will all tax related issues.