What % Is Capital Gain Tax
HI I have a question..my gf's parents are currently renting in a place that I think would be a good money-maker. The man who rents bought it for like 40,000 in the 70's and homes in the area are selling for 260+. The place needs work as in new bathroom/kitchen, redo the tile, fix plumbing etc.
He says he doesn't want to sell because his taxes will be $50,000 at least...can this be true? From what I have read on here he would have to live in the place for 2 out of 5 years to be excluded correct? I am trying to find the right anwers so I can get this guy to sell and give me a potential deal.
The maximum long term capital gains tax hit will be 15% of his profit from appreciation plus 25% of his allowed depreciation.
I would use this argument with your guy.
Congress just reduced the CG rate to %15. It is unlikely that the taxes on his gain will ever be cheaper then at the current rate. In fact I would predict that the rate will go back up in the near future. Therefore, now is the absolutely best time for him to sell.
If he still refuses to sell becuase of taxes get him to do a 1031 exchange. He can exchange into another property and not pay any taxes.
Be careful with this argument. If the seller is informed, and if the seller will be in the 15% tax bracket (or lower) in 2008, then he wil know that his long term capital gains tax rate drops to ZERO for that year only.
Generally speaking, it may be best to avoid giving your seller tax advice or counseling. Instead, tell the seller that recent changes to the capital gains tax rate may make the seller's tax liability less than he expects and a sale may be more attractive at this time. Advise him to consult his personal tax advisor for specific details on his actual tax liability.
Dave T,
I did not know that the long term capital gains rate will go to zero in 2008. I thought the rate was set and would not change unless Congress enacts new legislation.
I knew that estate tax declines were phased in, went to zero and then back to the old rate.
Please explain?
I do agree that any argument using tax structure to entice a sale should include asking the Seller to consult thier tax advisor.[ Edited by pspiers on Date 02/25/2004 ]