How much will I pay in capital gain taxes?

Question

Hello all, my question is pretty basic but I cannot find a good answer online.

How much will I pay in capital gain taxes?I have a triplex that I bought for 200k 6 years ago, I refinanced to take cash out and now I owe 350k, I can possibly sell for 500k.

Will I pay capital gains for 300k or 150k(debt is tax free).taxes: married

Thanks!

Eddie L. · Answer

Assumptions:

1. Taxpayer did not depreciation property.

2. All 3 units were rented out to others.

3. There were no improvements and other miscellaneous closing costs.

4. Triplex was not used and depreciated as part of their business.

5. Sale happened in 2021.

6. Total taxable income for taxpayer married filing jointly is between $80,800 and $501,600.

$500k Sale Price - $200K Adjusted Basis = $300k Taxable Long Term Capital Gain x 15% Capital Gain Tax Rate = $45,000 Federal Tax

Allan C. · Answer

@Nat Serrano Sale price less purchase price less transaction costs (ie. closing and commissions) less capital improvements. You’ll also need to recapture depreciation.

Tina Wicks · Answer

Hi there,

First off definitely talk to an accountant.  With that said, here is what I learned this year as we sold a property in 2021, tried to do a 1031 exchange and failed due to the time constraints, so had to pay capital gains.

We bought the house in 2008 for $100K.  Sold it in 2021 for $175K.  Had capital gain of $75K.  So that's the first tax nugget.  But we also had to add back in all of the depreciation we had taken over the past 12 years.  I believe they call this "Depreciation Clawback".  So we were very concerned about our tax bill.  The only thing that saved us this year, is that we have been accumulating losses throughout our investment career as we make too much in our W-2 jobs to be able to apply those losses against our W-2 income.  Those accumulated loses were then applied against the capital gain nugget and reduced our tax bill.

As I said before, PLEASE contact your accountant.  There are a couple of Biggger Pocket books on tax strategies.  I suggest you read them.  Not so that you become a tax expert to replace your accountant, but so that you know what you can do to help your accountant help you. Just my two cents.

Good luck on your investing journey.

Bruce D. Kowal · Answer

It can be confusing.  Here's an article about it.  I take no credit for writing clearly about this.  I tried to simplify it, and made a mess of it.

Thank Goodness for computers . . .

the amount of depreciation claimed on Sec 1250 property that is not recaptured as ordinary income under the Sec1250 recapture rules is unrecaptured section 1250 gain, and is subject to a special capital gain tax rate of 25%

Recaptured and Unrecaptured Real Estate Rental Section 1250 GaRecaptured and Unrecaptured Real Estate Rental Section 1250 Ga

Eddie L. · Answer

@Dave Foster

Thanks for the correction. With the unrecaptured sec 1250 gain of ~$44k @ 25% tax rate, would result in an additional ~$11k of taxes.

Dave Foster · Answer

@Eddie L., It does not matter if @Nat Serrano took depreciation or not.  depreciation recapture is on all depreciation you did take or could have taken.

@Bruce D. Kowal, CPA, Maybe there's something new down the pike you're referring to.  But un-recaptured 1250 depreciation as far as I know has always been recaptured at ordinary income rate up to a 25% maximum.

And of course don't forget that you may be subject to state tax and possible surcharge for the Affordable Care Act.

If you go the 1031 route there of course  is no tax.  All indefinitely deferred tax including gain and depreciation recapture  is used to purchase more investment property

Bruce D. Kowal · Answer

The depreciation recapture rules only apply if you took accelerated depreciation.  If someone does this a lot, you may want to choose straight-line depreciation, and avoid messing with recapture. This is termed §1250 gain.  Initially you will get greater losses from accelerated, to be sure.  Upon recapture, some of that benefit will be taken away.  Maybe somewhere, someone has modeled this, with and without.  Just something else to mess with your head!

Dave Foster · Answer

@Andrew C., That's exactly right.  You can purchase multiple replacement properties.  As long as you meet the timelines and the reinvestment targets you'll defer all tax.

How much will I pay in capital gain taxes?

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