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by Pattywagon on June 9th, 2006

Pattywagon

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I want to sell a rental I have owned since 1982. I paid $43K and the market value is $225K. I took all the depreciation that was allowed in the 1980s and whatever was required in recent years. How do I figure my capital gains and what do I owe IRS?

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Answers. 3 helpful answers below.

  • by Jim100 on December 25th, 2006

    Jim100

    Ok, this is the deal. If you WANT to sell it, then you have not sold it yet, so you can still avoid tax entirely if you re-invest the money into another investment property. This would be a long term capital gain if you do take some out(since you bought it so long ago). You will be limited in time for your re-investment, so you may want to be looking into that when your home is on the market(wait until 2007 as you probably cannot close on the new property by the end of this year). If you move into the home, then it would become your primary residence(if you occupy it for at least 6 months in most states), and thus would be tax exempt when you sell it(up to somewhere around a million $-this changes depending what year it is). (consider the fact that you only get that exemption once in your lifetime so take it on your most expensive residence only - unless you plan on living until you die in that one.)
    You can look up your local state law regarding the tax rates, and the tax rates have recently changed at the fedreal level, and remember to deduct all investments you have made into the property, and any utilities that you may have paid over the years if those were included, or during times it went vacant. Then new federal tax laws scale up, such as if you made X then you pay y% over Z amount up to the next level. Hope this helps. SO in other words, take only the amount you NEED out of the sale and re-invest the rest during that calendar year that you sell the first one, and pay only the tax on what you kept. Some really smart investments right now are converting studios to one bedrooms! This can be a HUGE profit fast. You can put in a new kitchen with granite counter tops, and a wine cooler in the middle, and add a wall to make the bedroom, get new carpet, and upgrade the fixtures in the bathroom. You have to put together a competent licensed team to do this work for you if you are going to turn these over fast(get fixed contracts stating it will not cost more than x from each member). Just an idea. Take care.

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  • by ccsolheim on October 9th, 2007

    ccsolheim

    If you are planning on reinvesting the proceeds from the sale of that rental to purchase another investment property, you should look into doing a 1031 exchange (Section 1031 tax deferred exchange). Section 1031 of the IRS Tax Code allows you to defer the capital gains tax on income, investment, and/or business property when you use the proceeds from the sale of the property to purcahse another investment property. You should contact a 1031 professional, known as Qualified Intermediaries, if you want more information on this - www.1031taxinfo.com has great information on 1031 exchanges as well.

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  • by trevorm on February 26th, 2007

    trevorm

    Here is a useful capital gains tax calculator that will help you figure out what you need to pay.

    http://www.structuredsalespro.com/capital-gains-tax-calculator.html

    You need to know how much you depreciated over the years and your states current tax rate on capital gains.

    You can defer this tax to future years if you want.

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