I am interesting in buying homes, possibly flipping some and renting out others. What exactly do I need to do to save on taxes? Should I see a lawyer or an accountant? What about incorporating?
NewKid, will this be considered lon term, since they held it less than 5 years? If it is short term will the CG tax be 20%?
I am still hoping to find out how to calc recaptured depreciation. Do they take the your depreciable ammount and charge 25% of that or do they take 25% of the depreciable ammount and tax that figure by the capital gains rate.
Thanx, Don
Properties held for longer than one year are subject to long term capital gains taxation at the time of sale. The current law which was enacted in 2003 places the tax rate at 15% for most people. Exclusive of capital improvements, the gain can be partitioned into two components --depreciation which reduces the basis in the property and appreciation. The depreciation component is taxable at 25% while the appreciation component is taxable at 15%. These are for the Fed.
Suppose that you purchased a property for $100K and held it for over one year and sold the property for $200K. You depreciated the property by $20K over the period of time that you held the property. You will owe .25 times $20K = $5K for the depreciation component plus .15 times $100K = $15K for the appreciation component for a total of $20K.
What you are hearing is some old rules that were repealed in 1997, blended with some of the new rules in effect today. No wonder you are getting conflicting information.
Before the 1997 changes to the tax code, a homeowner could sell a primary residence and defer the capital gains taxes on the sale profit if all of the gain from the sale was reinvested in a new primary residence within two years.
In 1997, these rules were repealed and replaced with new two year rules. Now, there is no requirement to reinvest the gain into a new property. Up to $250K in sale profit per taxpayer can be excluded from capital gains taxes provided:the taxpayer has owned the property at least two of the five years prior to the sale,and,the taxpayer has occupied the property as his primary residence at least two of the five years prior to the sale, and,the taxpayer has not used the capital gains exclusion for a previous home sale within the 24 months prior to the sale.
For a married couple filing a joint tax return, only one spouse actually needs to be on title, but both must meet the other requirements to qualify for their combined maximum exclusion of $500K.
Unmarried (and unrelated) owners must separately meet all of the requirements to take advantage of their $250K maximum capital gains exclusion.[ Edited by NewKidinTown2 on Date 07/19/2005 ]
That explains it. Here in Southern California I ran across a guy who claimed he, his wife and his in-laws owned a duplex, whereby he and his wife shared one side and his in-laws the other, all as their primary residences. Since all four parties satisfied the requirements of IRC Section 121, upon disposition of the property eventhough there was a gain of 850k, it was 100% excludable from taxable income.
Quote:
On 2005-07-19 09:49, NewKidinTown2 wrote:
What you are hearing is some old rules that were repealed in 1997, blended with some of the new rules in effect today. No wonder you are getting conflicting information.
Before the 1997 changes to the tax code, a homeowner could sell a primary residence and defer the capital gains taxes on the sale profit if all of the gain from the sale was reinvested in a new primary residence within two years.
In 1997, these rules were repealed and replaced with new two year rules. Now, there is no requirement to reinvest the gain into a new property. Up to $250K in sale profit per taxpayer can be excluded from capital gains taxes provided:the taxpayer has owned the property at least two of the five years prior to the sale,and,the taxpayer has occupied the property as his primary residence at least two of the five years prior to the sale, and,the taxpayer has not used the capital gains exclusion for a previous home sale within the 24 months prior to the sale.
For a married couple filing a joint tax return, only one spouse actually needs to be on title, but both must meet the other requirements to qualify for their combined maximum exclusion of $500K.
Unmarried (and unrelated) owners must separately meet all of the requirements to take advantage of their $250K maximum capital gains exclusion.
<font size=-1>[ Edited by NewKidinTown2 on Date 07/19/2005 ]</font>
See both. They each have their own expertise to contribute to a solution.
Long term capital gains due to appreciation will be taxed at 15% and your gain due to depreciation will be recaptured at 25%.
NewKid, will this be considered lon term, since they held it less than 5 years? If it is short term will the CG tax be 20%?
I am still hoping to find out how to calc recaptured depreciation. Do they take the your depreciable ammount and charge 25% of that or do they take 25% of the depreciable ammount and tax that figure by the capital gains rate.
Thanx, Don
fh4rent,
Properties held for longer than one year are subject to long term capital gains taxation at the time of sale. The current law which was enacted in 2003 places the tax rate at 15% for most people. Exclusive of capital improvements, the gain can be partitioned into two components --depreciation which reduces the basis in the property and appreciation. The depreciation component is taxable at 25% while the appreciation component is taxable at 15%. These are for the Fed.
Suppose that you purchased a property for $100K and held it for over one year and sold the property for $200K. You depreciated the property by $20K over the period of time that you held the property. You will owe .25 times $20K = $5K for the depreciation component plus .15 times $100K = $15K for the appreciation component for a total of $20K.
Regards,
Ed
What you are hearing is some old rules that were repealed in 1997, blended with some of the new rules in effect today. No wonder you are getting conflicting information.
Before the 1997 changes to the tax code, a homeowner could sell a primary residence and defer the capital gains taxes on the sale profit if all of the gain from the sale was reinvested in a new primary residence within two years.
In 1997, these rules were repealed and replaced with new two year rules. Now, there is no requirement to reinvest the gain into a new property. Up to $250K in sale profit per taxpayer can be excluded from capital gains taxes provided:the taxpayer has owned the property at least two of the five years prior to the sale,and,the taxpayer has occupied the property as his primary residence at least two of the five years prior to the sale, and,the taxpayer has not used the capital gains exclusion for a previous home sale within the 24 months prior to the sale.
For a married couple filing a joint tax return, only one spouse actually needs to be on title, but both must meet the other requirements to qualify for their combined maximum exclusion of $500K.
Unmarried (and unrelated) owners must separately meet all of the requirements to take advantage of their $250K maximum capital gains exclusion.[ Edited by NewKidinTown2 on Date 07/19/2005 ]
That explains it. Here in Southern California I ran across a guy who claimed he, his wife and his in-laws owned a duplex, whereby he and his wife shared one side and his in-laws the other, all as their primary residences. Since all four parties satisfied the requirements of IRC Section 121, upon disposition of the property eventhough there was a gain of 850k, it was 100% excludable from taxable income.
Quote:
On 2005-07-19 09:49, NewKidinTown2 wrote:
What you are hearing is some old rules that were repealed in 1997, blended with some of the new rules in effect today. No wonder you are getting conflicting information.
Before the 1997 changes to the tax code, a homeowner could sell a primary residence and defer the capital gains taxes on the sale profit if all of the gain from the sale was reinvested in a new primary residence within two years.
In 1997, these rules were repealed and replaced with new two year rules. Now, there is no requirement to reinvest the gain into a new property. Up to $250K in sale profit per taxpayer can be excluded from capital gains taxes provided:the taxpayer has owned the property at least two of the five years prior to the sale,and,the taxpayer has occupied the property as his primary residence at least two of the five years prior to the sale, and,the taxpayer has not used the capital gains exclusion for a previous home sale within the 24 months prior to the sale.
For a married couple filing a joint tax return, only one spouse actually needs to be on title, but both must meet the other requirements to qualify for their combined maximum exclusion of $500K.
Unmarried (and unrelated) owners must separately meet all of the requirements to take advantage of their $250K maximum capital gains exclusion.
<font size=-1>[ Edited by NewKidinTown2 on Date 07/19/2005 ]</font>