What Is Taxed // Capital Gains
Ok, I heard two different things. capital gain tax are taxes applied to either A or B:
A. sell of property minus selling expenses (realtors commissions)
or
B. sell of property minus selling expenses, minus purchase price, and minus any improvements.
which one is it?
i live in pa..if that matters
C. Taxable Capital Gain = Sale Price, minus selling expenses, minus purchase price, minus capital improvements, and minus depreciation.
Your personal residence is one thing and investment property is another. Read this:
Calculating Your Cost Basis and Capital Gain
Just like calculating capital gains, the formula for calculating the gain or loss involves subtracting your cost basis from your selling price.
The formula for calculating your cost basis on your main home is as follows:
Purchase price
+ Purchase costs (title & escrow fees, real estate agent commissions, etc.)
+ Improvements (replacing the roof, new furnace, etc.)
+ Selling costs (title & escrow fees, real estate agent commissions, etc.)
- Accumulated depreciation (for example, if you ever took the office in the home deduction)
= Cost Basis
And then calculating your profit or loss would be:
Selling price
- Cost Basis
= Gain or Loss
If the resulting number is positive, you made a profit when you sold your home. If the resulting number is negative, you incurred a loss.
Finally, calculate your taxable gain:
Gain
- Maximum or Partial Exclusion
= Taxable Gain
Also remember on investment property there is a RECAPTURE of depreciation.
Unrecaptured Depreciation is also recaptured for your primary residence if was used as a rental for any periods since May 1997.
Quote:Gain - Maximum or Partial Exclusion = Taxable GainActually, all gain is taxable. The IRS does permit qualified taxpayers to exclude some of their taxable capital gain from taxes.
If the property was a primary residence that had been used as a rental, then the portion of the gain attributed to unrecaptured depreciation is first recaptured. Then, the capital gain exclusion is applied to gain that remains -- the gain attributed to appreciation.
The capital gains exclusion is optional as well. The taxpayer is not required to apply the exclusion if it is not to his/her benefit to do so.
It can apply to both. I only answered a previous question like I did so that the person would understand depreciation on a property has to be accounted for. The cost basis for property includes acquisition costs, which includes all those fees you listed basically. Figuring capital gains also gets to long term or short term.
What about my own personal labor costs? I got an estimate to repalce the drywall in my house for 4k. I did the work myself and it only cost me 1k. Can the 3k I saved on labor be included in the basis? In other words I just paid myself 3k to do my own drywall. What if i paid a very good "friend" to do it? Thanks jim[ Edited by SOAPY on Date 11/08/2005 ]
SOAPY
You want something for nothing. LOL If in fact you paid your buddy to do it yes. You can add to the basis major improvements. Whether you can pay yourself to do it and claim that amount I would say no. Your friend should get a 1099 from you if he did it as an Independent Contractor. He will have to pay tax on his income.
As a general rule, an LLC for rental property operation is tax neutral. That is, your income tax liability will be the same with or without the LLC.
If you are a resident of CO, your income from a FL condo rental is still taxable income on your CO state tax return.
If you establish your LLC in a state other than where you are doing business, you will still have to register your LLC as a "foreign corporation" in the state where you do business -- another registration fee, another resident agent -- and pay taxes in that state as well if that state has an income tax.
Your primary residence is where you live most of the year. Even a renter lives somewhere most of the year, and that place is his primary residence.