How to calculate potential profits

Question

Hey everyone,

I listed a property at 168KI got a cash offer for 140K w a 2 week closing.

Realtor Fees 4% (-$5600)

Closing Fees 1.5% (-$2100)

Remaining Mortgage ~ 73K (-$73000)

That leaves me at $59300

If i substract my Initial Investment ~38K (-$38000)

That leaves $21300. (If I get to keep this)

Where does the capital gains tax come into play in this math?! And how much will it be?!

Overall, I feel like this is not in my favor, but could use some tips.Please advise, BP fam! Thanks! ✌️

Paul V. · Answer

@Leor Fay how much did you pay for the property when you bought it?

Leor Fay · Answer

Thanks @Paul V. , that makes me feel a bit better before taxes 😅 & and thanks @Henry Clark

So it looks like I qualify for the 15% tax.

At what part of the equation should I deduct that? At the 59,300 or 132300 (if i add back the 73K)?

Henry Clark · Answer

You don’t subtract the loan balance to get to your gain or loss.   Add back the $73k.  That is a Cashflow item, not a cost or expense.

Paul V. · Answer

@Leor Fay Long term capital gains rates below.  It is based on your income.  Either way, getting a 21k profit on a 38k investment in a matter of 2 years is awesome.  That's something like a 25% annual rate of return. Amazing!

Leor Fay · Answer

This is the first offer I received. I like that it’ll take the property off my hands quickly.But I know neighboring unit sold for $160K or more. I was hoping for a better profit, even with having to pay capital gain taxes.

Leor Fay · Answer

Thanks Paul.

I’ve had the property since Aug 2021, so this would be long-term. Do you know the income brackets for determining whether it’ll be a 0, 15, or 20% tax?

Paul V. · Answer

When did you purchase the property?Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.Short-term capital gains taxes are paid at the same rate as you'd pay on your ordinary income, such as wages from a job. Long-term capital gains tax is a tax applied to assets held for more than a year. The long-term capital gains tax rates are 0 percent, 15 percent and 20 percent, depending on your income.