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Old 02-09-2015, 05:57 PM
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Question Help projecting capital gains tax and depreciation recapture

I'm getting very vague responses from our current CPA when I asked him to project our tax liabilities should we sell our rental property, so this makes me a bit nervous. Basically he said that given our current tax bracket (10%) we would only be subject to paying capital gains of 15% of the total of our annual taxable income and the proceeds of the sale that exceed $73,800.

The property was purchased in Sept. 2009 as our first home, and unforeseen circumstances led us to decide to move and rent the house out, so that the mortgage would be paid. We started renting it out in May 2010 and it has been occupied since then. We've never realized a profit.

(Fingers crossed) our financial situation is looking to improve this year with my husband embarking on a new career after he finishes school this May. We are leaning toward selling the house as we want to try to move out of state and could use proceeds from the sale toward purchase of a new residence for our family.

So, some numbers...

The house was purchased Sept. 2009 for $215,000 (not including closing costs, fees, etc. if that needs to be included say the total cost is $221,000)

Let's assume we sell the house at the end of this year for $275,000 (which is realistic after having some market analysis by agents done a week ago).

Depreciation claimed at this point (through end of 2014) is $33,467 (our CPA listed the property cost at 199,000 and land at 20,000 on the Depreciation Detail Listing)

We file our taxes married filing jointly, and have 3 dependents (ages 8 and younger). We've been in the 10% tax bracket since 2010. Each year we've reported rental real estate losses on line 17 of the 1040, so these losses have reduced our total income for tax purposes. (If specific numbers are needed I can provide those).

Even with the addition of the income we hope my husband will start bringing in at the middle of this year, we anticipate our total wages for 2014 will be between 46,000 and 48,000.


Sorry for the novel. We are just trying to determine what is realistic to expect we would be paying in capital gains taxes and depreciation recapture given the estimated numbers I just provided.

Summary:

Purchase price: $215,000 ($222,000 if you include closing costs, etc.)
Sales price: $275,000
Improvements: $0
Depreciation: est. $40,703 (includes the $7236 we expect to take during 2015)
Real estate losses already claimed on our 2010-2014 tax returns (if this matters): $25,351

Our CPA advised that if we want to sell we should do so this year to pay the least amount in taxes, since my husband will only be earning an income during the second half of the year. He didn't say anything about depreciation recapture.

Again, sorry for the novel



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