Capital Gains on Personal Property

Comments(4)

• 
  DaveT4th May, 2003

  Dave,
  
  The tax due on the sale of your primary residence depends upon your marginal tax bracket.
  
  If you're in the 15% income tax bracket:
  
  Capital Gains tax rate on your primary residence if held for a year or less is the same as your ordinary income tax rate.
  
  Capital Gains tax rate on your primary residence, if held for more than a year, but less than two years, is 10%.
  
  Capital Gains tax rate on your primary residence, if owned at least two years but less than five years and occupied as your primary residence for at least two years of the five years prior to sale, is 0% for the first $250K of profit (per taxpayer), then 10% after that.
  
  Capital Gains tax rate on your primary residence, if owned at least five years and occupied as your primary residence for at least two years of the five years prior to sale, is 0% for the first $250K of profit (per taxpayer), then 8% after that.
  
  If your ordinary income tax bracket is greater than 15%:
  
  Capital Gains tax rate on your primary residence if held for a year or less is the same as your ordinary income tax rate (anywhere from 27% to 38.6%).
  
  Capital Gains tax rate on your primary residence, if held for more than a year, but less than two years, is 20%.
  
  Capital Gains tax rate on your primary residence, if owned and occupied as your primary residence for at least two years of the five years prior to sale, is 0% for the first $250K of profit (per taxpayer), then 20% after that.
  
  If you purchased your primary residence since January 1, 2001, the Capital Gains tax rate on your primary residence, if owned for five years and occupied as your primary residence for at least two years of the five years prior to sale, is 0% for the first $250K of profit (per taxpayer), then 18% after that.[ Edited by DaveT on Date 05/04/2003 ]

• 
  davese4th May, 2003

  Well I guess I'll have to stay for a year. I bought the house for 184K and was offered 255K.
  
  I really don't want to pay the 28+% on that profit.
  
  What if I do a lease option with this person with the option due at the end of say 2 - 5 years?

• 
  DaveT4th May, 2003

  Assuming the current tax laws do not change and assuming that your marginal tax bracket is greater than 15% at the time of sale, your capital gains tax rate will be 20% if sold between April 8th 2004 and April 7th 2008, and 18% if sold after that date.

• 
  5th May, 2003

  davese:
  
  I know the taxes may cause you to turn down the offer, but what you should be looking at is your yield on your return. I do not know of many build deals where you can buy a house for $184k, sell it for $255k, net approximately $53k after taxes (assuming an effective tax rate of approximately 25%) in less than 1 year. If you work your calculator, you will find that your yield will likely be well over 100%, depending on the amount of cash you had invested in the deal and the length of time the money was invested.
  
  The real questions are: (1) do you really want to live in the property? (2) what is the economy like in your area (is the unemployment rate going down or up, because that can affect resale prices in 2 years from now) (3) can you take that $53k and use it to make more than the $20k of income taxes you would have lost on the deal? I would suspect that the latter answer is yes. In fact, if you can do exactly what you just did, you probably can make substantially more than the mere $20k you would lose in taxes.
  
  Remember, the name of the game is quick dimes, not slow dollars. All that matters is what you keep and what is left in your pocket in your REI time frame. Don't let the "tax tail" wag the "economic profit dog!"
  
  Good luck!
  
  Taxjunkie[ Edited by taxjunkie on Date 05/05/2003 ]