Capital Gains
I am the process of selling a condo in flordia, the profits would be substantial enough to impose the capital gains tax. however, i plan on buying a similar conda which would be of lesser value, if i do this immediatly following my sale, would i be subject to the capital gains tax? If you could answer this I would appreciate it.
THANKS
Yes, the profit on the sale of your FL condo is taxable.
If you have owned AND occupied the property you are selling as your primary residence for an aggregate of 24 of the past 60 months, then up to $250K of your profit (per taxpayer) may be excluded from capital gains taxes. Any profit that exceeds this amount is still a taxable capital gain. There is no need to reinvest the proceeds from your sale to qualify for the exclusion.
If the property you are selling is an investment property, then your profit is a taxable capital gain. You can spread out the recognition of your profit by using an installment sale or contract for deed. Purchasing another investment property will not reduce your tax liability.
To defer the capital gains taxes on your investment property (perhaps indefinitely), consider using a 1031 like-kind exchange to replace your investment condo with another investment property. If the value of your replacement property is less than the value of your relinquished property, only the difference will be a taxable capital gain.
If the property qualifies for a 1031 exchange you can also identify the property you want to buy BEFORE you sell your existing preperty.
By the way, capital gains taxesa re only 15% now anyway.....
[addsig]
You must be careful when referring to capital gain taxes. The maximum Federal capital gain tax rate is 15%, but you may have a state capital gain tax and you will probably have Federal (and potentially state) depreciation recapture to deal with (25%). It is not always a cheap as one might think.
Bill Exeter.
If you are considering a 1031 tax deferred exchange, I am pretty sure that the replacement property (the one you are buying) must be of greater or value than the relinquished property (one you are selling). Maybe you can find another property and get both in a 1031. The IRS limits you to three replacement properties. Also, a delayed (Starker) exchange gives you 45 days to identify the replacement properties and 180 days to close.
Good luck,
Ed
Sorry for the typo. I meant greater than or equal value.
Quote:If you are considering a 1031 tax deferred exchange, I am pretty sure that the replacement property (the one you are buying) must be of greater or value than the relinquished property (one you are selling). edmeyer,
Not quite right. There is no requirement for the replacement property value to exceed the relinquished property value. The IRS will allow an otherwise qualified exchange if the replacement property value is less than the relinquished property.
Now, if you want to defer the capital gains tax on ALL of your potential profit in your relinquished property, then you only accomplish this when your replacement property value is greater than or equal to your relinquished property value. If the replacement property value is less, then the difference is a taxable capital gain.
Additionally, there is no firm requirement to identify three properties. You can identify fewer if you wish. You are allowed to identify up to three replacement properties. The IRS will even allow you to identify more than three properties, but there will be additional restrictions imposed on the exchange.
Dave,
Thanks for the clarification. I just looked up the three property rule from two internet sources and apparently up to three properties totaling any value can be replacement properties and four or more can qualify if their total value is within 200% of the relinquished value.
There are probably additional refinements!
Regards,
Ed
Could someone tell me where I can find valid proof about the 24 mos. out of 60 rule for capotal gains.
I have a owner in my neighborhood that wants to sell his house and has been in it for 3 years. He thinks he has to live there for 5 years to get his taxes deffered. He paid cash for the house 3 years ago.
He can sell this without a cap. gains in texas, correct?
Scott
I think you need a "qualified" tax advisor, familiar with (and preferably active) in REI to answer with certainty, and more importantly, for future reference...Could be your most valuable team member as complex and everchanging as the tax codes are.[ Edited by norrist on Date 12/25/2003 ]
Quote:Could someone tell me where I can find valid proof about the 24 mos. out of 60 rule for capotal gains.sahurst,
IRS Publication 523 has all the details. http://www.irs.gov/publications/p523/index.html
If you want to read actual language in the tax code, look up the Code of Federal Regulations, Title 26, Subtitle A, Chapter 1, Subchapter B, Part III, Section 121. Or just click here: http://www4.law.cornell.edu/cgi-bin/htm_hl?DB=uscode26&STEMMER=en&WORDS=sec+121+&COLOUR=Red&STYLE=s&URL=/uscode/26/121.html#muscat_highlighter_first_match
Does anyone know if one would still be subject to the Capital Gains tax if they sold a property through a "C" Corp?
Generally speaking, all income received by your corporation is taxable income to the corporation. All money distributed by the corporation to you as a shareholder is taxable, again, on your 1040.
Let's say your C-Corporation only sells one property during the year and after all expenses, shows a $20K net profit for the year. Your corporate tax rate is 15% which leaves the company with $17000 after taxes. If you take that $17K as a dividend distribution, then your $17K is taxed as ordinary income to you on your personal 1040. If you are in the 25% tax bracket, then you are left with $12750 after federal income taxes. Of course, you can not ignore state taxes (both corporate and personal), which will further reduce your net after tax.
Your CPA will have to make a determination on how to handle the tax treatment on the profit from the sale of a corporate asset, especially if that tax treatment depends upon whether you have a Subchapter C Corporation or a Subchapter S Corporation.