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I'm working to understand capital gains tax for California…

I'm working to understand...

I'm working to understand capital gains tax for California property purchased 4 years ago. It's a primary residence, purchased 4 years ago for $385k with $285k principle outstanding. Expected sale price of $630k

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

How would I calculate capital gains ($345k profit?)

Accountant's Assistant: Is there anything else the Accountant should be aware of?

That should be enough information.

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12/7/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Customer reply replied 2 months ago
Few things to add, here:1.) I haven't taken a write off for any depreciation in the last 4 years (only property tax).2.) I've put in ~$15,000 in home improvements (also, not written off).

In order to determine whether or not you incur capital gains or not, you start with the cost basis (purchase price, plus improvements). If you sale the property for more than the cost basis, you incur a gain. If you sale for less than the cost basis, you incur a loss. Gain or loss, the sale has to be reported on the Schedule D and the Form 8949. Still writing...

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Customer reply replied 2 months ago
Separately, based on the first answer math, what would the financial benefit be to get married prior to the sale?

As this is personal use property, you do not claim depreciation. Depreciation is not claimed on personal use property. In addition, if you meet the qualifications, you may be able to exclude $250,000 of the sales price. SEE BELOW:

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Eligibility Step 2—Ownership Determine whether you meet the ownership requirement. If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.

Eligibility Step 3—Residence Determine whether you meet the residence requirement. If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.

REFERENCE SOURCE:

https://www.irs.gov/pub/irs-pdf/p523.pdf

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Customer reply replied 2 months ago
OK - so the remaining ~$85,000 would be taxed at what rate(s) - both Federal and Local?

What state are you in? As for the federal side of things, the capital gains rate depends on the total income for the year. The rate will either be 15 or 20%. SEE BELOW:

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Report most sales and other capital transactions and calculate capital gain or loss on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, then summarize capital gains and deductible capital losses on Form 1040, Schedule D (PDF), Capital Gains and Losses. If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you're in the 10% or 15% ordinary income tax brackets. However, a 20% tax rate on net capital gain applies to the extent that a taxpayer's taxable income exceeds the thresholds set for the 39.6% ordinary tax rate ($415,050 for single; $466,950 for married filing jointly or qualifying widow(er); $441,000 for head of household, and $233,475 for married filing separately).

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Customer reply replied 2 months ago
Excellent. This works, thank you!
Customer reply replied 2 months ago
Also, California.

You are welcome. I will get the capital gain rate for California. I will get back to you shortly.

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Customer reply replied 2 months ago
Great. I'm filing single under 10.3% taxable income (CA).

The proceeds from the sale will be added to your other income to determine your total income for the year. As for the capital gains rate in California, it could as high as 13.3%.

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Customer reply replied 2 months ago
Got it. Thank you!
Customer reply replied 2 months ago
Can you confirm tax exempt for single is $250,000 and married is $500,000?

Let me clarify, the information provided for California is the maximum tax rate for CA. As for long term capital gains in California, it is taxed as ordinary income in California, so if your income lands you in the 13.3 % tax bracket, then, that is what the capital gains rate is going to be.

If you meet the requirements that I provided in one of the previous responses, as a single filer, you will qualify for the $250,000 exemption. I am getting the requirements for married claiming the exclusion.

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Marriage. Married individuals may exclude up to $500,000 of gain if they file a joint return and neither spouse excluded gain on the sale of another home within a previous 2-year period. If one spouse meets the ownership requirement, both are considered to have met the requirement. See Eligibility Step 2—Ownership, earlier. However, each spouse must individually meet the residence requirement. See Eligibility Step 3—Residence, earlier. I will list the requirements again. SEE BELOW:

------------------------------------------------

Eligibility Step 2—Ownership Determine whether you meet the ownership requirement. If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement.

Eligibility Step 3—Residence Determine whether you meet the residence requirement. If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.

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