Calculating Capital Gains Tax
How do you know how much capital gains tax you are to pay? Also, what are the calculations?
How do you know how much capital gains tax you are to pay? Also, what are the calculations?
Capital gain (or profit) on the sale of a capital asset is the difference between your sale proceeds and your cost basis.
For assets held one year or less
Cap Gain Tax = Profit x (Tax Bracket Rate)
For assets held longer than one yearIf you are in the 15% tax bracket or lower
Cap Gain Tax = Profit x 5%
If you are in the 25% tax bracket or higher
Cap Gain Tax = Profit x 15%[ Edited by NewKidInTown3 on Date 12/29/2005 ]
Makes no difference. The form and substance of the transaction, not the business entity or lack thereof, is what determines whether a dealer disposition has occurred.
That’s because the word flipping is a sub definition of the word sell..
Every flip is a sell but every sell isn’t a flip...
And I like the word.... No I LOVE the word....
As for taxes who cares just make enough to pay the taxes.... as for dealer status or capital gains I put all of my flips in either my a Sub S corp. or C corp. and all of the properties I hold for rentals in my person. I just make sure I never take but the minimum amount of wage out of my S corp. and borrow from it any money I need. You would have to confirm this with your CPA but I believe my accountant told me that I should pay myself 6k a year to not put up red flags..
As for leasing or flipping that really depends on your business model. Neither one is better than the other unless defined that way in your model...
I don’t L/O I flip but I can see that advantage of L/Os and if that what you like go for it...
When you L/O I believe you should appreciate the price of the house to near the anticipated price at term and collect a larger non refundable deposit...
Two rules of thumb... 1) if they cure the option great you have made appreciation on their dollar and 2) if they don’t cure you have made money on their deposit. Either way you win....
Keep in mind to give them the TDS if you L/O at contract...
Good Luck
[addsig]
Dear EDWINJCB,
Thanks for you opinion. You Rock!
--Kim
I think a good CPA is worth the money. I did my own taxes before going to a CPA. A good one can save you money. Good luck.
How did your LLC elect to be treated for tax purposes?
What do you mean on how my LLC is treated? When i created, i used www.Legalzoom.com to do it and just went through their wizard.
It is a partnership and there are 2 members. Myself and the other person lives in Canada. The LLC though is registered in IL
Sorry if my last post is a little confusing, but just to be clear, I live in the US (IL) and the other member lives in Canada.
Now that we know your LLC is a partnership for tax purposes, you will need to use TurboTax Business to generate your partnership return (Form 1065) and the Schedule K-1s for yourself and your partner.
Use TurboTax Premier (or Deluxe, or Basic) for your personal tax return.
So I need to run both pieces of software? I was under the impression that i just needed the Business edition and that would take care of my personal return as well
Sorry, but your impression used to be correct, but has been overcome by recent events.
TurboTax used to have a version called Home And Business" that was pretty much everything most of us would need. Last year, Intuit decided to unbundle Home and Business, to offer separate versions for specific needs.
TurboTax Business will do your Trust, C-Corp, S-Corp, and partnership tax returns. The personal versions of TurboTax will do everything else that you need to get your personal 1040 done.
If your LLC had been able to elect to be treated as a disregarded entity, then the personal TurboTax would be sufficient. In your situation you will need both versions if you plan to do your own taxes.
I used both last year, and will again this year. I did not find TurboTax Business to have as robust an interview module as I have come to expect from TurboTax Premier. All I can say is spend $100 on the tax software, then if you get stuck, call the IRS toll-free taxpayer assistance number to get specific tax questions answered. For software assistance, the TurboTax help desk has been pretty good for me in the past.
If the do it yourself route seems too overwhelming, then go to an accountant this year. Use your partnership return that the accountant prepares as a model for next year when you do your own return with TurboTax Business.
On a home you own and live in as your primary residence you can clear 250000 per taxpayer/owner that live in the house 2 of the previous 5 years. If the capital gain was just that amount there would be no tax.
The 1031 tax deferred exchange has to do with investment property you own and trade for like kind property the capital gains tax is deferred until you actually take the gain at some time in the future. The two refer to completely different aspects of real estate and tax law. There are exact methods that need to be followed in a 1031 exchange. A mistake can cost dearly.
Check out the forum post relating to the "1031 Exchange", which is what is being discussed here.
Thank You.
SpyBoy
Just lower your sale price by $100K - $150K. You achieve the same result with respect to your personal income taxes. Then just go buy a $350K property to live in.
If you have two years to play with, why sell at all?
Why not convert your current primary to a rental for one or two years before you sell. Now when you sell you still get the $250K capital gains exclusion AND any profit over that can be sheltered in a 1031 tax deferred exchange.
400k minus 250k equals 150k at a capital gain of 15% equals 22500 capital gain. Why would you walk away from more money in your hand spendable cash just to avoid capital gain of 22500 so you can realize less profit. AM I MISSING SOMETHING HERE?
My thoughts, exactly. With that much profit, give Uncle Sam the 22.5k as his fair due.
Much better than finding a cohort who also wants a tax avoidance scheme.
Good article. Thanks for sharing.
Thanks mcole. Glad to help.
bump
You might get some response in the TAX LIEN forum. This is the income tax forum.