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Old 05-02-2014, 11:05 AM
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Super simple capital gains question for a Rental Property..

My question is when calculating capital gains.... are all closing costs added to the basis of the purchase (inspections, taxes, lawyer fees)? Also, are all closing costs of the sale subtracted from the sale price (realtor commission, taxes, seller assistance /w closing costs)?

Basically, is this scenario roughly correct?

Taxes After Sale (Very Rough)
———————————————— ——————
Purchase Price - $143,000
Closing Costs - $6000
Depreciation - $7000 for 2 years
New Basis - $142,000
-------
Sale Price - $160,000
Sale Closing Costs - $10,000
New Adjusted Sale Price - $150,000
Capital Gain - $8,000
Capital Gain Tax (15% Federal + 6.5% State = 21.5%) - $1720



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Old 05-02-2014, 06:29 PM
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Join Date: Oct 2010
Posts: 4,838
Quote:
Originally Posted by chazman113 View Post
My question is when calculating capital gains.... are all closing costs added to the basis of the purchase (inspections, taxes, lawyer fees)? Also, are all closing costs of the sale subtracted from the sale price (realtor commission, taxes, seller assistance /w closing costs)?

Basically, is this scenario roughly correct?

Taxes After Sale (Very Rough)
———————————————— ——————
Purchase Price - $143,000
Closing Costs - $6000
Depreciation - $7000 for 2 years
New Basis - $142,000
-------
Sale Price - $160,000
Sale Closing Costs - $10,000
New Adjusted Sale Price - $150,000
Capital Gain - $8,000
Capital Gain Tax (15% Federal + 6.5% State = 21.5%) - $1720
My question is when calculating capital gains.... are all closing costs added to the basis of the purchase (inspections, taxes, lawyer fees)? =============>>>>>>>>>>The closing costs are detailed in the HUD statement or other settlement document.According to the IRS, the closing costs that are included in the basis of property you buy include abstract fees, legal fees for title search and preparation of the sales contract and deed, recording fees, surveys, transfer taxes, owner's title insurance, and charges for installing utility services

Also, are all closing costs of the sale subtracted from the sale price (realtor commission, taxes, seller assistance /w closing costs)?============>>>>>>>>>correct;as selling costs
.
Basically, is this scenario roughly correct?

Taxes After Sale (Very Rough)
———————————————— ——————
Purchase Price - $143,000
Closing Costs - $6000
Depreciation - $7000 for 2 years
New Basis - $142,000===>>your adjusted basis is $142k ;$143K-$7K+$6K as you can include in the basis of property you buy/sell the settlement fees and closing costs that are for buying/selling the property. You cannot include fees and costs for getting a loan on the property. (A fee for buying property is a cost that must be paid even if you bought the property for cash.) The closing costs are detailed in the HUD statement or other settlement document.According to the IRS, the closing costs that are included in the basis of property you buy include abstract fees, legal fees for title search and preparation of the sales contract and deed, recording fees, surveys, transfer taxes, owner's title insurance, and charges for installing utility services
-------
Sale Price - $160,000
Sale Closing Costs - $10,000
New Adjusted Sale Price - $150,000
Capital Gain - $8,000
Capital Gain Tax (15% Federal + 6.5% State = 21.5%) - $1720========>>>>>>>>>$160K-10K=$150K-$142K=$8K and you must recapture the unrecaptured depre, sec 1250 rrcapture on form 4797 part 3 as ordinary income taxed at 25% aslongas your marginal tax rate is 25% or higher.so $7K of the $8K is taxed at 25% as ordinary income and the remaining $1K is taxed at 0% if your tax rate is 15% or lower, or 15% if your ta rate is higher than 15%.



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