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What is your other income besides this condo? Is this your primary home? How long have you been using it as your home? Are you married filing joint and both spouse used the house as primary residence? If this is rental property- what is the depreciation allowed on the house?
Income is est $200k/year.
Do not file jointly. Apartment is an investment property. Do not know depreciation allowed. Spent about 100K in improvenents.
Did you rent the property?
Yes, rented it for two years @ $4,200/month
Regarding Gain on Sale of rental property(also known as Sec 1250 property):
Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. The additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method.
In your case, you will not have additional depreciation if you use the straight line method as prescribed by the IRS rules.
Tax on Gain:
To the extent of depreciation allowed/allowable, at least some of those gains (so-called unrecaptured Section 1250 gains) are taxed at a maximum rate of 25%.
The remaining of the gain is taxed at the "general rule" maximum rate of 15%.(Long Term Capital Gain Tax) The remaining of the gain is taxed upto the "general rule" maximum rate of 15%.(Long Term Capital Gain Tax)
To the extent an unrecaptured Section 1250 gain falls into the 10% or 15% bracket, it gets taxed at that rate.
if you bought the property for $100000 and claimed depreciation of $50000, your adjusted basis is $50000 ($100K-$50k). If you sell it for $150K than your gain is $100K ($150K-$50K). Gain upto $50K will be unrecaptured sec 1250 gain and taxed upto maximum of 25% and balance gain of $50K will be taxed as long term capital gain as discussed above.
Please note that the last para is an example for your reference.
NY state tax will be at ordinary tax rates. Since you are in high income bracket, NY State tax at 6.85% will apply and NY city tax at appx. 3.65%
Thank you, XXXXX XXXXX answer is not clear to me. Can you please simplify? I am just looking for an estimated dollar amount. What would I be looking at in terms of capitals gains, given the information I have provided?
Presuming that you have claimed depreciation of appx. $56K and your cost basis is $725K+$100K(improvements)- your adjusted cost basis is $769K. When you sell the property for $1.4 mn - your gain on sale will be appx. $631K (it would be less once you reduce the selling expense from sale price).
Of this gain, $56K will be taxed at higher rate of 25%. Balance gain on $575K will be long term and taxed at 15%.
For state tax purposes, $631K will be taxed at appx. 10.5%
so the total tax liability will be appx. $167K
Please note that since you will have high capital gain, you may also be subject to AMT (Alternative Minimum tax) and so the tax liability may increase a little depending on your other income.
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