surprising
Recycles dryer sheets
- Joined
- Feb 7, 2023
- Messages
- 121
Thinking of selling a rental property next year. Will net over $350K, so planning to restructure my investments to remove any dividend stocks etc to avoid any additional income. I will have some interest income from savings.
For taxes, I understand that I need to adjust cost basis to include depreciation recapture. Does this *only* include the depreciation part of my tax deductions that I claim on the rental property? Every year in addition to the depreciation, I also deduct prop taxes, maintenance, repairs, etc. I'm assuming none of this is part of depreciation recapture.
For taxes, I think the basic formulas are:
(adjusted cost basis) = (buy price) - (depreciation recapture) + (capital improvements)
Gain = (sale price) - (adjusted cost basis)
Tax = (depreciation recapture) * (ordinary tax rate) + ((gain) - (depreciation recapture)) * (long term cap gain rate)
Putting in some numbers:
(buy price) = 135000
(depreciation recapture) = 36000
(sale price) = 440000
(adjusted cost basis) = (135000) - (36000) + (0) = 99000
Gain = (440000 - 99000) = 341000
Tax = (36000) * (ordinary tax rate) + (305000 * LTCG rate of 15%)
Now, given that my 'ordinary income' is so low here, my ordinary tax rate will be 10% and my LTCG will actually be slightly less than 15% as a portion will be taxed at 0% LTCG rate ( 94050 - 36000 - (standard deduction)). Is that correct?
If I did the math correctly, it looks like I'll be paying about $40K in taxes for about $370K cash in hand (sale price - mortgage) = ~11% in taxes. Does it sound about right?
For taxes, I understand that I need to adjust cost basis to include depreciation recapture. Does this *only* include the depreciation part of my tax deductions that I claim on the rental property? Every year in addition to the depreciation, I also deduct prop taxes, maintenance, repairs, etc. I'm assuming none of this is part of depreciation recapture.
For taxes, I think the basic formulas are:
(adjusted cost basis) = (buy price) - (depreciation recapture) + (capital improvements)
Gain = (sale price) - (adjusted cost basis)
Tax = (depreciation recapture) * (ordinary tax rate) + ((gain) - (depreciation recapture)) * (long term cap gain rate)
Putting in some numbers:
(buy price) = 135000
(depreciation recapture) = 36000
(sale price) = 440000
(adjusted cost basis) = (135000) - (36000) + (0) = 99000
Gain = (440000 - 99000) = 341000
Tax = (36000) * (ordinary tax rate) + (305000 * LTCG rate of 15%)
Now, given that my 'ordinary income' is so low here, my ordinary tax rate will be 10% and my LTCG will actually be slightly less than 15% as a portion will be taxed at 0% LTCG rate ( 94050 - 36000 - (standard deduction)). Is that correct?
If I did the math correctly, it looks like I'll be paying about $40K in taxes for about $370K cash in hand (sale price - mortgage) = ~11% in taxes. Does it sound about right?