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Estimating Taxes for Rental Home Property After Sale - Am I doing these numbers right?
Posted on 5/27/18 at 7:47 am
Posted on 5/27/18 at 7:47 am
I'm still confused on how to really estimate my capital gains taxes for this year.
Here are the numbers I have so far:
Original Purchase Price (2009): $179k
Depreciation: ~$18k
Current Land Value (20%): $35k
Current Building Value: ~$137k
Improvements: $7000 (a/c units - do these count as improvements?)
Sale Price (2018): ~$173k
Income this year will be approximately $91k combined filing as married. In original purchase price, the seller paid all closing costs. We only paid the down payment. Renters were in the home for four years.
Is this the correct formula?
Original Sale - Depreciation + Improvements = Cost Basis
Sale Price - Cost Basis = Amount to be taxed
So...
$179k - $18k + $7k = $169k.
$173k - $168k = $5000
15% (long term capital gains rate) of $2000 = $750.
Do I get an A on the test?
Here are the numbers I have so far:
Original Purchase Price (2009): $179k
Depreciation: ~$18k
Current Land Value (20%): $35k
Current Building Value: ~$137k
Improvements: $7000 (a/c units - do these count as improvements?)
Sale Price (2018): ~$173k
Income this year will be approximately $91k combined filing as married. In original purchase price, the seller paid all closing costs. We only paid the down payment. Renters were in the home for four years.
Is this the correct formula?
Original Sale - Depreciation + Improvements = Cost Basis
Sale Price - Cost Basis = Amount to be taxed
So...
$179k - $18k + $7k = $169k.
$173k - $168k = $5000
15% (long term capital gains rate) of $2000 = $750.
Do I get an A on the test?
This post was edited on 5/27/18 at 8:12 am
3
Posted on 5/27/18 at 7:55 am to StringedInstruments
Your A/C will be depreciated also as long as it was a rental during the entire time after you purchased the AC system. Its depreciated on a 7 year basis I think? Not sure on that.
The house is depreciated on a 27 year basis I believe. So take the purchase price of the house minus the land value, and divide by 27 to get the yearly depreciation. That should be more like $42k in depreciation if my math is right?
I'm not an accountant, just own properties.
The house is depreciated on a 27 year basis I believe. So take the purchase price of the house minus the land value, and divide by 27 to get the yearly depreciation. That should be more like $42k in depreciation if my math is right?
I'm not an accountant, just own properties.
Posted on 5/27/18 at 8:11 am to baldona
The a/c unit was purchased in 2017 and it was a rental until March 2018. I'm going by TurboTax's "amount of depreciation taken in prior years" on my 2017 form, which is $12,436 + this year's depreciation, which is $5,269 (Schedule E Line 18a). So the actual amount is ~$18k according to my returns.
Posted on 5/27/18 at 10:38 am to StringedInstruments
Ah, so it was primary residence a couple of years then?
Posted on 5/27/18 at 12:26 pm to baldona
quote:
Ah, so it was primary residence a couple of years then?
Yep. Renters moved in August 2014.
Posted on 5/27/18 at 12:54 pm to StringedInstruments
Don't forget to take into account depreciation recapture.
Posted on 5/27/18 at 1:15 pm to NEWBIE
quote:
Don't forget to take into account depreciation recapture.
You have to remember that I am a 5 year old who shoves crayons up his nose.
Doing some initial reading doesn't make any sense to me. This link from Investopedia seems to suggest that someone who sells a $350k house for $430k after 11 years (including 11 years of depreciation) will owe a total $73k in taxes and depreciation recapture:
quote:
For example, consider a rental property that was purchased for $350,000 and has an annual depreciation of $20,000. After 11 years, the owner decides to sell the property for $430,000. The adjusted cost basis then is $350,000 – ($20,000 x 11) = $130,000. The realized gain on the sale will be $430,000 - $130,000 = $300,000. Capital gain on the property can be calculated as $300,000 – ($20,000 x 11) = $80,000, and the depreciation recapture gain is $20,000 x 11 = $220,000.
Let’s assume a 15% capital gains tax and that the owner falls in the 28% income tax bracket for 2017. The total amount of tax that the taxpayer will owe on the sale of this rental property is (0.15 x $80,000) + (0.28 x $220,000) = $12,000 + $61,600 = $73,600. The depreciation recapture amount is, thus, $61,600.
They sell it for a $80k profit but have to pay ~$74k? I must be misunderstanding that.
Posted on 5/27/18 at 1:24 pm to StringedInstruments
quote:
They sell it for a $80k profit
No they sold it at a 220k profit because they were deducting 20k of income every year for 11 years. Depreciation recapture taxes up to what youve taken as depreciation at regular rates because you were deducting it at regular rates yearly. So in your case, if I'm understanding your facts correctly, you are going to recognize your 5k profit at ordinary rates because you've taken more than 5k of depreciation on the property.
Posted on 5/27/18 at 1:38 pm to Mingo Was His NameO
quote:
No they sold it at a 220k profit because they were deducting 20k of income every year for 11 years. Depreciation recapture taxes up to what youve taken as depreciation at regular rates because you were deducting it at regular rates yearly. So in your case, if I'm understanding your facts correctly, you are going to recognize your 5k profit at ordinary rates because you've taken more than 5k of depreciation on the property.
Ah. Got it.
I'm just going to sock away $1500 and hope that covers it.
Posted on 5/27/18 at 8:16 pm to StringedInstruments
quote:
Do I get an A on the test?
No.
The depreciation recapture amount is taxed at your ordinary income tax rate.
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