Capital Gains Question
Hello Everyone,
I know a little about Cap Gains but need clarification on one thing:
Let's say the profit (gain) on my long-term sale of a 3-unit rental is $40,000 and I only made $13,000 in income for that year.
After deducting the $7000 personal deduction, I fall easliy withing the lowest tax bracket (10% I think).
Now how would the gain be taxed?
Since I'm in the lowest bracket do I just multiply the $40,000 by the 5% Cap Gains rate (equalling $2000)? OR do I apply the 5% UP TO the point that puts me in the next bracket then apply the next higher rate to the next level, and so on?
Then there's depreciation: I deducted about $15,000 in depreciation; is THAT taxed at a different rate too (like 25%)?
Thanks for the help! I want to sell this 3-unit and buy this more expensive 3-unit I just found, but do not know whether to just pay the Cap gains tax this year (since my income will be so low) or do a 1031 Exchange.
BTW, if I do a 1031, do I need to mention that in my offer/contract on the one I want to purchse?
-Tony
Quote:Since I'm in the lowest bracket do I just multiply the $40,000 by the 5% Cap Gains rate (equalling $2000)?Yes. If you are still in the 10% marginal tax bracket in 2008, your capital gains tax rate drops to ZERO% for that year only.
Quote:Then there's depreciation: I deducted about $15,000 in depreciation; is THAT taxed at a different rate too (like 25%)?Yes. Depreciation recapture is 25% regardless of your marginal tax bracket.
Quote:if I do a 1031, do I need to mention that in my offer/contract on the one I want to purchse?No, you mention it in the purchase and sale agreement for the property you want to use as the relinquished property in a 1031. With a tax liability so low, I am not sure it is worth the effort and expense to execute a 1031 exchange in this case.
So, If I have a taxible inclome of, say $5000 (10% bracket), and a Capital gains of $40,000 with $15,000 depreciated FOR 2004, what would my tax be?
Is it (40,000 x 5%) + ($15,000 x 25%)?
or something different? Are you SURE that the whole $40,000 gain is taxed at 5% and not part of it, then another part at the next higher rate?
-Scared in PA
BTW, it was my impression that a 1031 costs was about $500, is it a lot more than that?
Thanks again foks, I am very very grateful for your help.