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Old 12-02-2013, 01:33 PM
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Close on Building 12/2013 or 1/2014?

I am able to close on the sale of a commercial / residential building this month. We have owned the building for many years and there is substantial capital gains. I don't know whether I will roll the gains over to another real estate venture or not.

My question right now is whether there are tax advantages to close this month or January 2014.



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Old 12-03-2013, 03:27 PM
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Originally Posted by lbohen View Post

My question right now is whether there are tax advantages to close this month or January 2014.
As you said, probably your commercial property has appreciated from the time that you bought it, you will be subject to capital gains tax on the entire gain. As you have held it for over one year, it qualifies as a long-term capital gain and is typically taxed at the 0% or 15 % rate. As you can see, since you dispose of a commercial / residential building, you need to recapture the depre and are subject to a 25 percent tax on all depreciation you have claimed. SO, depreciation recapture can cause a significant tax impact for people who are selling residential /commercial rental properties. Part of the gain will be taxed as a capital gain and may qualify for the maximum 15% rate on long-term gains. The part of the gain that is related to depreciation, however, will be taxed at a maximum 25% rate. The technical term for gain related to depreciation on residential property is called unrecaptured real estate depre, sec1250 dpre recapture. However, the federal capital gains tax rate is currently 0 percent UNLESS your tax bracket is higher than 15%; and 15% as long as your marginal tax rate is higher than 15%.So UNLESS your tax bracket is higher than 15%, this year, you may sell it without CG tax.

Several states levy capital gains taxes on the sale of commercial property;you ned to check it with the Dept. of Rev of yur home state for more info in detail. For example, in CA in 2010, the capital gains tax rate is 9.3 percent. CA residents selling property in another state don’t owe CA taxes on capital gains, but must understand their tax obligations in the state where the property is located. Although laws vary from state to state, most states tax both capital gains and accumulated depreciation as regular income, meaning that you will need to pay your state's prevailing income tax rate in addition to the federal capital gains and depreciation recapture taxes.



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