Hello experts! i couldnt get a clear answer to this question anywhere, thought maybe you guys can help! Please verify if the following assumptions are correct and my question:
purchased condo at 2005/06 for 290k and lived in it as primary residence
assume sell condo at 2006/07 for 380k
home improvement cost - 20k (it was a package deal done by 1 contractor which included: new kitchen cabinets, new hardwood floor, home theater wiring, painting, plumbing work in kitchen/bath room etc )
realtor commsion 6% = 380k * 0.06 ~= 22k
so my gain would be 380k - 290k - 20k - 22k = 48k (is this correct? )
Since i do not satisfy the 2 year rule, will have to pay sales tax on the 48k (is this correct?). Now my main questions HOW MUCH tax do i have to pay on the 48k? currently i pay 28% tax on my paycheck, is that how much i am expected to pay on my 48k gains ?
Newgut that all depends on what you are looking to do with the money. If you were to put the proceeds of this property into a new property you could do a 1031 exchange and is not taxed. If you were to go to Mexico and party on the cash then yes you would be taxed but not as income that is still capital gains.
To read up on how the gains tax works go to the source
you could transfer the property into a corp and have the corp sell it.
the corp recognizes the gain and you have a whole year worth of
biz/investment expenses to deduct from it before you pay taxes on it!
What was the reason you left the property? Did you stay in the same area?
Basically, if you don’t do a 1031 Starker Exchange, you’ll have to pay 15% Capital Gains on what you made (provided you kept it longer than 1 year). If you left that area for reasons delineated in the tax code, you may still be able to qualify for an exclusion.
i dont qualify for any of the special situations, just me deciding to sell before the prices drop further and going back to renting.
keith, are you saying i only have to pay 15% on the gain(if i kept the property for 1+ year) and not my income tax bracket which is 28%? that’s good news.
The Federal Tax is NOT 15%…the Federal Tax will be taxed at the same rate as his personal income! There are several income tax brackets depending upon how much regular income that you make.
Original purchase price + closing cost at time of purchase, plus
Physical (capital) improvements excluding ordinary repair (painting) and maintenance
Amount realized: subtract from basis
New Selling price
New closing costs
Exclusion, $250,000 or $500,000 (if living in home 24 months)
This should give you accurate capital gains profit/loss.
For substaintial gains, if you occupy the principal residence for 2 of the previous 5 years there’s an exclusion of $250,000 for singles and $500,000 for married owners. The exclusion can be taken once every 2 years. Any amount over these limits would be taxed at 15%, the long-term capital gains rate.
I think a Section 1031 like-kind exchange applies only to trade, business, or income producing investment properties to qualify for a tax-deferral. You would pay the tax, however, it would be spread out over time. Tax law changes frequently on this, so best the check with tax advisor.
Perhaps, if you stayed just a few more months (24 month period) it could work to your advantage. Sell now no benefits, sell later…may work out evenly.
You would not qualify for a 1031 exchange. The property is your primary residence. You would have to move out of it and rent it for a period of time - say 12 months or more - before you would safely qualify for a tax-deferred exchange.