Tax on sale of real estate

[David Rollings]

I currently own 21 properties in Indianapolis.  I have never sold one of my properties.  Someone recently contacted me with interest in buying a few of my properties.  I am curious to know how to figure the amount of tax I will owe on the sale of these properties.  Is there anyone out there who understands taxes on the sale of property in Indianapolis?  Is there a specified amount of time I should hold properties before selling in order to pay the least amount of tax?

Thank you,

David 

[Steven Hamilton II]

Originally posted by @David Rollings:

I currently own 21 properties in Indianapolis.  I have never sold one of my properties.  Someone recently contacted me with interest in buying a few of my properties.  I am curious to know how to figure the amount of tax I will owe on the sale of these properties.  Is there anyone out there who understands taxes on the sale of property in Indianapolis?  Is there a specified amount of time I should hold properties before selling in order to pay the least amount of tax?

Thank you,

David 

 First you will pay up to 25%(+state rate) on the recapture of depreciation that was taken or could have been taken.  On the amount over that you will pay capital gains and state tax on. So Assuming you are normally in the 25% bracket. and 3.3% in State tax for Indiana(assuming you live there).

So if you bought for 110k 10 years ago and 10k was assessed to land value. Lets also say you sell for 210k.

100k / 27.5 years = 3636.36 per year in depreciation

3636.36 X 10 years = 36,363.63 in total depreciation subject to recapture and state tax = 28.3%

So we have:

36,363.63 Depreciation recapture
63,636.37 Adjusted basis of the house
10,000 Land

110k total
100k Capital Gains. Subject to Federal and State Tax. 15+3.3%

18.3k Capital gain plus state
10,290.91 Recapture of depreciation plus state
28,590.91 Total Taxes Paid.

Possibly subject to additional Medicare taxes as well. Now if you are considered a real estate professional you will not be subject to the Additional Medicare Tax of 3.8%

I would consider a tax deferred 1031 Exchange and a good conversation with @Bill Exeter to see about rolling multiple properties into one larger investment either an apartment complex, strip mall/shopping center investment or possibly a NNN investment.