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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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What is the tax rate on the sale of commercial real estate

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What is the tax rate on the sale of commercial real estate on which straight line depreciation over a 39 year period was used. Is this section 1231 gain, which can be offset by capital loss carryforwards. The gain will be approximately $500,00 and there are capital loss carryforwards of approximately the same amount.

Lev :

Hi and welcome to our site!
A gain on the disposition is treated as ordinary income to the extent of depreciation allowed or allowable on the property.
Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain - taxable as a long term capital gain - because the asset was owned more than a year.
The part of the section 1231 gain which is taxable as a long term capital gain - may be fully offset by capital loss carried forward from previous years.
The part which attributed to the depreciation recapture may not be directly offset - but added to other taxable income. Only up to $3,000 capital loss may be used to offset other taxable income.

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