Tax question about sale of rental

[countrygirl2]

Ok, asked this in another section and taxes, it was suggested I ask here.

Ok, see if I remember this right, I read some, but.....

We sold a rental, I take the net sales price less the basis to get the gain,

that is taxed at 20%.

The basis is $66k and depreciation is $48k so we have to recapture the

depreciation and pay ordinary income tax on that. Is this correct?

I'm getting nervous about what we are going to owe, I paid in $10k from

the sale on estimated federal taxes, now realize its not enough. I'm just wanting

to see if I'm doing this right so I can come up with a ballpark figure for taxes.

It's going to a CPA to be done as we also have an LLC, this is not in the LLC,

just regular sale of a rental.  Been out of school 50 years and haven't done

our taxes in 20 or 30 and I'm not sure I'm reading it right.
 

[countrygirl2]

Yes, any that were sold before his company group handled them and that stuff is all mixed in

with the international taxes so not sure I can figure it out. It seems a pretty straight forward

question doesn't it? I can't believe no one else knows the answers. I'm stressing wanting to

get a handle on what kinds of taxes I have to pay. The rest of what we have I'm pretty

comfortable with, just this one.

[countrygirl2]

Ok, started my own research as I want to know, hubs said well you are paying tax people, let

them figure it out. Well no.

Ok, this is rudimentary

I take the cost basis and compute the portion allocated to the cost of the land.

I then take this percentage times the gross proceeds and this is the amount of the sale attributable to land.

I take this same % times the expenses from the hud form and subtract that dollar amount as anything attributed to land is not allowed in the rest.

Now I have gross sales, less computed land cost, minus computed expenses less adjusted cost basis, purchase price less land.

I now have the computed amount attributed to capital gains  and this amount is taken

times 20%.  So for my purposes close to $10k, this was what I paid in as estimated taxes I was ok there.

However, my many years being brain dead, I knew there was depreciation recapture, but didn't even think of the magnitude.

Now there are various types of depreciable assets 1245 and 1231, not going to get into it, just looking at broad information right

now.

But depreciation recapture is at 25% of what was depreciated, so now looking at approx. another $12000 in taxes, my bad, did

not calculate that.

I do have fix up expenses to take off yet, so a few thousand off the capital gains figure, but not enough to make a big difference.

I already know we are ok tax wise on the LLC as hubs spent quite a lot getting another rental ready and is on the market, so

substantial expenses on it this year. Then need to look at allowable deductions, but I feel better then we did and I will NEVER
let this happen again, whatever we sell in the future will have taxes paid, whew!!

Now don't take this to the bank as there are nuances in the caculations I brushed over but this gives you a broad look at what to

expect. 

Maybe if there are corrections to this, someone will do so for me.

[TheOtherMe]

Here is a link to an article:  www.katehorrell.com/understanding-depreciation-recapture-taxes-on-rental-property/

It's been too many years since I prepared tax returns to feel competent to answer questions.

[Deleted]

I actually agree with your DH, countrygirl2. This is why you are paying a tax professional.

Most of the tax professionals on here are busy preparing taxes. Lol. The rest of us would primarily be guessing.

[NastyWoman]

I am not really into taxes (and don't even do my own) but something seems off on the reasoning above. Wouldn't the cap gain be taxed at 2 different tax rates? Say you depreciated 2/3 of the house. I would think that 1/3 of the cap gain would be taxed at 20% and 2/3 at ordinary income tax rates, no? I seems to me that you would otherwise be double taxed on the depreciated part?

[countrygirl2]

I'm not sure either to many years. I'm just trying to get an idea on what we owe and

I think its a lot. My own fault didn't realize recapture would be that much. 

I'm like you though, something does seem off. I looked at it and on the

form looks like I'm double dipping, have to go back and take a look again. 

It's not something I can dig into just superficially I have to actually run pretty close

numbers. No matter the exacts I think I have the ball park figure.

Also its a point of pride, I like to be up on everything and not make mistakes and

this is a big one that involves real money.

[countrygirl2]

Ok this sounds better if anyone is interested

Purchase price plus improvements

Minus Depreciation

Equals Cost Basis

Gross Sales

Minus Selling Expenses

Minus Cost Basis

Net

(Depreciation taxed at 25%)

Net Sales

Minus amount taxed at 25%

Balance of gain Taxed at Capital Gains rate of 15%

Now no double taxation

Does that sound right?

Not looking any further, pretty close on amount, I'm done

[countrygirl2]

Got an answer on the tax board, just unstressed me a bunch, now I'm a happy camper

and I learned a lot so won't be so misinformed next time. Though next one is sale of

raw land, so different.

What a relief, now I can afford to get my new carpet this year!!!

[Knee Deep in Water Chloe]

We have an accountant, so I've not had to deal with that. I do know I have to give our accountant the sales page thing.

[countrygirl2]

I knew quite a bit just not enough to get an idea of our taxes owed, big difference between a $20k additional

bill and a $5k, whew!

[Jaguar]

countrygirl2, rangerj posted in your tax thread again, go have a look if you haven't already seen it.

[countrygirl2]

Ok