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R. Klein, EA, Enrolled Agent
Category: Tax
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# Hello, I have a tax question. Last year I had an adjusted

Hello, I have a tax question. Last year I had an adjusted gross income of less than \$16,000. I suspect 2013 will be similar within a couple thousand dollars. I am selling a rental property and I may not be able to do a 1031 exchange. This will net me capital gains after the depreciation is recaptured of 100,000.

But from what I am reading I don't believe I should have to pay capital gains taxes because my tax rate for capital gains would be zero? Is that correct? Are there any IRS publications for 2013 for this?
Thank you,
Clay Binkley

Randalltax :

Thank you for your question. I just answered a similar one a few minutes ago.

Randalltax :

To determine whether you will be subject to a capital gains tax, you must first determine what tax bracket you would fall into as though there was no special cap gains tax rate.

Randalltax :

As a single person, you would get a standard deduction and exemption totalling \$10K in 2013. So if you had the standard deduction and 116K in positive income, your taxable portion would be about \$106K, This puts you well into the 28% tax bracket.

Randalltax :

Because the majority of your income is capital gain, it follows special rules. Assuming this is a rental property, you first must recapture your depreciation. Let's say that \$20K of the \$100K is depreciation recapture. This is taxed at a flat 20%

Randalltax :

Any gain above this, in our example, 80K, is subject to a maximum cap gain rate of of 15%. It actually will be slightly lower, because some of your income will fall into the 10% and 15% tax brackets, meaning a portion in subject to a 0% rate. It is a complex formula.

Randalltax :

Your wage type income will be taxed at 28% because it is on the "top"

Randalltax :

Based on the scenario you outline, I highly doubt you will have zero tax. However, the number IS XXXXX low. It will depend on how much of the income is considered depreciation recapture, really. In the example above, I computed an actual tax of around \$1,000.

Randalltax :

Correction on that tax estimate....putting SINGLE in the calculation, it is closer to \$6500 tax.