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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3119
Experience:  IRS licensed Enrolled Agent and tax instructor
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I'm selling a two family house that I haven't lived in

Customer Question

I'm selling a two family house that I haven't lived in for a number of years. What is the capital gains percentage on the capital gain on that? Is the Affordable care act surtax of 3.8% added to that ? (house will be selling at $425,000, purchased at $59,000 in 1970.)
If so, is it calculated on the capital gains or on the sales price?
In state of NJ, is there a real estate transfer tax?
I've had a number of improvements done on the house since 1970: finish basement, bathroom in basement, french drains, sump pumps, etc. These were done by family members, and I have no receipts. Can I calculate the costs in materials and labors from that time? Or do they increase with inflation like the house did?
i know the recent improvements of having the house sided, and getting a new roof are deductible as they were within a year of selling.
I anticipated selling the house two years ago, at which time i had the first floor apartment completely painted, and several floors refinished. Are these costs deductible from the capital gained?
Do jobs such as tree removal, and sidewalk straightening done in the past year ($4200) count as improvements?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

First, you will need to know your basis. Add the purchase price, major improvements and expenses of sale (nondeductible transfer taxes and fees, RE commission) and deduct casualty losses you deducted in previous years if any. For the major improvements you only count material and what you paid others to do the job. You cannot include value of your own labor or your family members. Major improvements are considered improvements that increased the value of the property not just the maintenance cost and repair. Moving lawn, fixing leaking roof or replacing faulty light bulbs would be maintenance and repair, replacing the windows or roof, installing air conditioning or replacing water heater would be improvement.

Once you have your basis figured out, deduct it from the selling price (price the house was sold for, not what you received after all expenses were deducted). Have you ever used the property for business and deducted depreciation?

Customer: replied 1 year ago.
the house was depreciated for $40,000 over the years.
Expert:  emc011075 replied 1 year ago.

If you don't have the recites just make a reasonable educated guess. All improvements, regardless when they were done can be included in calculation of your basis. Repainting the apartment will be considered maintenance, replacing floors is improvement, tree removal would be considered improvements do the land and since you are selling the house with the land, you can include it as well.

Why did you depreciate it? Did you used it as rental?

Customer: replied 1 year ago.
it was a two family h ouse
Customer: replied 1 year ago.
we rented out the upstairs
Expert:  emc011075 replied 1 year ago.

Ok. If you took the depreciation, you may have some depreciation recapture, which means, part of the capital gains will not get the special long term capital gain treatment but will be taxed as ordinary income at 25%.

Expert:  emc011075 replied 1 year ago.

Once you figure out your capital gains (selling price - your basis) you will report it on schedule D. Long term capital gains are eligible for special capital gain treatment and here's how it works:

in 10 - 15% tax bracket - long term capital gains are taxed at 0% (yes, no capital gains)

in 20 - 35% tax bracket - long term capital gains are taxed at 15%

in 39.6% tax bracket - long term capital gains are taxed at 20%

Because of the depreciation recapture I wold suggest to have to tax return prepared by a knowledgeable tax professional. It is little tricky to calculate and most commercial software will not help you with it.

Expert:  emc011075 replied 1 year ago.

Any questions so far? Let me check on NJ transfer tax.

Expert:  emc011075 replied 1 year ago.

The transfer tax is directly linked to the deed and since you will be transferring the deed to somebody else, you will have to pay the RE transfer tax unless you qualify for one of the exemptions: senior citizen, blind/disable, low income housing. Here's RE transfer tax calculator:

Your title agency, or even RE agent should be able to help you with it.

Expert:  emc011075 replied 1 year ago.

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?

And if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.

Customer: replied 1 year ago.
This was a godsend, to be able to get those tax and house sale questions answered quickly rather than hunt around to hire an accountant. Do you guys also do corporate tax returns? I am disgusted with the long wait and many errors my cpa put me through.
Customer: replied 1 year ago.
While it's never pleasant to find out the bad news about taxes upon taxes, it was good to be have accurate data to be able to plan before the sale of the house goes through, so i don't consider the distribution of funds I won't have.
Expert:  emc011075 replied 1 year ago.

We (experts) are all independent contributors and most of us usually work for other company during the tax season. I am in CT but let me ask around to see if somebody here's in NJ who would be able to meet with you. When it comes to taxes, you need to have contact with your tax professional. I can also suggest to check enrolled agents database to find one in your area. Enrolled agents are IRS licensed tax professionals with same representation rights as CPA or tax lawyer and similar continuing education requirements. Enrolled agents must past a complex 3-part (100 question each) test administered by IRS approved testing centers.

Check the website to see if you can find one in your area:

Expert:  emc011075 replied 1 year ago.

Here you can search for EA:

Majority of EAs have hands on experience preparing corporate returns.