Hope someone can help me out on this one. How do you figure out what taxes are owed on the sale of a rental house? I know my tax basis, my accumulated depreciation, but don't know what to do with the tax basis. Do you deduct your mortgage loan, real estate and repair fees and tax basis from the sale price and pay taxes on the rest? I've been trying to reach my accountant for three days, my real estate agent doesn't know, and I've just spent over a half hour of frustration on various search engines.YOU are my only hope!
I am not a CPA and I don't even play one on TV. I saw your question on another board, tried to answer, and the answer seemed to go out into the universe. It didn't register, anyhow.The answer, which I am sure is wrong in significant respects, appears to be you pay 25%. More precisely, your cost basis is what you paid for the place, minus the amounts you took as depreciation. Your selling price is what you get for it, less your closing costs like attorney's fees, real estate stamps, and so on.I went to the relevant IRS publications and found them hard to read. However, it appears that that portion of your gain that you got from depreciation, will be taxed at 25%. The rest goes at 20%. But it is complicated because of the trading off of gains against losses.Mortgage etc. doesn't count. These are all expenses and you would have been dealing with them on Schedule E through the years. Uncle Sammy just cares about your profit, which as I say is your selling price less your depreciated cost basis.I am posting this merely because I didn't want you to think no one had noticed. I hope someone else will come along and clarify me.In the meantime, go to the Tax FAQ area. Click on the link at the bottom of this message.
Hope someone can help me out on this one. How do you figure out what taxes are owed on the sale of a rental house? I know my tax basis, my accumulated depreciation, but don't know what to do with the tax basis. Do you deduct your mortgage loan, real estate and repair fees and tax basis from the sale price and pay taxes on the rest? I've been trying to reach my accountant for three days, my real estate agent doesn't know, and I've just spent over a half hour of frustration on various search engines.***Your expenses are deducted on Schedule E of your tax return, just as you have done in the past, assuming the rental was in service (or available as a rental) until it was sold. Improvements are added to your basis. You deduct your basis (including improvements & costs of selling) from the selling price. Remember that you did not depreciate the land. Add that to the basis you used for depreciation purposes to calculate your gain/loss."Jack"
You take your original cost, add in any capital improvements you have made and subtract the depreciation you have taken. As you are aware, this becomes your tax basis. You then take the sales price that you sell the rental for, subtract your sales costs, subtract your tax basis and the final number then becomes your gain. You then compare your gain to the total depreciation that you have taken. To the extent of the depreciation taken - your gain is taxed at 25%. The amount of the gain that exceeds the depreciation taken is taxed at a rate of 20%, the standard capital gains rate. Hope this helps.
You are close on how to calc the tax gain on the sale of your rental property. The taxable gain is the net difference between the net sales price (gross sales price less commissions, less any closing costs you paid for the buyer) less the tax basis. The tax basis is: Original cost PLUS closing costs not previously deducted (such as origination fees or property taxes) PLUS any improvements LESS accumulated depreciation. If the gain is less than the amount of your depreciation, it is all ordinary gain, taxed at your marginal rate. If the gain is greater, then any excess over the A/D is capital. And I assume that you have held the property for over a year, so the gain would be long term? You can run through the numbers to see where you might stand, but you are right to contact your accountant for the final say so! Good luck getting ahold of her / him. It actually should be a little easier, now that the 15th is over......Good luck!p.s. Didn't you deduct the property tax fees as you went along? If not, you can deduct them, too.
my friend if you dont know that answer, what the hell were you doing investing in real estate in the first place??
muchmore, shame on you. The rules about depreciation are complicated and they vary depending on the object being depreciated: the building, the grounds, the appliances, and so on.People ask honest questions and they usually get honest answers, or at least links to places where they might find the answers.Contemptuous responses serve no purpose, except to reflect on the person writing them. I hope, before you post again, you will think about how you can contribute to the Fool site and not just waste people's time.
JABoa: Right on! It never ceases to amaze me at how clever some people THINK they are with their smug answers to honest questions. That muchmore seems to think that he or she is the fountain of knowledge and doesn't mind telling people off. I'm glad you responded the way you did.
Boka, I am pretty sure your taxes will be based on the net after expenses, i.e. sellers fees, commissions pd, repairs and mortgage paid off. That has been my experience.
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