Real Estate Income & Taxes

[Arthur Voskanyan]

If I have multiple investment properties and over the course of my time owning properties I realize that if I choose to re-sell the properties any profit I would make on the properties they would be subject to capital gains tax, assuming they are not my primary residence which they are not. So my question, do you pay capital gains on each property you make a profit on during a sale of your home, and if you do, are you paying capital gains tax AND income tax on the profit or just capital gains tax. Also if I have 3 properties and each property I sell, let’s say I make $190,000, the rule states that if you make less than $250,000 in profit you get to keep all of it without being taxed with capital gains. Does this still apply? Or since they are investment properties it doesn’t? Thank you in advance. Any advice/opinion is valued. Arthur Voskanyan

[Dave Foster]

@Arthur Voskanyan, You pay all applicable federal and state taxes.  If you've owned the property for more than a year your federal tax is as a recognized capital gain plus the depreciation recapture.  

Each state is going to be unique.  Some states don't have state tax. Some states don't have a capital gain rate as such.  They have a tax on income.  So the same gain you pay federal capital gains tax on you would pay state income tax on.  So just to complete the rubbing of salt that @Todd Dexheimer started, if you're AGI is south of $400K you'd be paying 15% capital gain fed, 13.3% state income tax CA, and maybe 3.8% ACA surcharge.  Or 32.1% tax total on your profit.  

That's a pretty steep price to pay to liquidate.