multi-family capital gain tax in NYC.

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multi-family capital gain tax in NYC.

Joe Dice
Investor · Brooklyn, NY · Member since 2017 · 1 post · 0 votes

Hello,

New to the forum, feeling very much like a newb in this whole real estate tax world. Hoping someone can help clarify some information I've gleaned from my accountant. Thanks in advance for any and all help to piece together this puzzle.

This is a scenario I'm hoping to understand.

Purchased 2-family home for 900,000. (lived in part, rented part)

Suppose a sale of 1.5million.

I am in the 28% tax bracket.

Is it true that;

I will pay 1.425% NY State Tax ($21,375)

I will pay 0.4% NY City Tax ($6,000)

I will pay Real Estate Agent Fee (suppose at 5%, $75,000)

Will the sale essentially be divided up into a 'personal residence' sale and an 'investment property' sale?

From what I understand this is what happens with the sale being split evenly between the two. 

Meaning I would have a personal capital gain of 750,000-453,000 = $297,000 Since I'm married this falls completely under the $500,000 exclusion.

For the business capital gain it would be 750,000-453,000 = $297,000 Taxed at 15% capital gain = $44,550

I also have a 'depreciation recapture' of $56,000 which I think is taxed at my regular income tax rate (28% federal + 6.65%) $19,404

Generally curious to know if those numbers look ballpark correct.

Some other specific questions include;

1) Is the split between residence sale and business sale done at 50/50 or is is percentage based on living space (ie 30/70)?

2) Is the realtors fee deducted from capital gains (if so does that follow the same percentage split as discussed in question 1.

3) Probably purchasing an RV after this to use as a primary residence. Is there a way that that can help with lowering taxes.

4) Curious if there is anything big that I have missed.

Thank-you so much in advance!

Best,

Joe

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  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    9y

    @Joe Dice

    Is it true...

    You will pay state and city tax on your net taxable income at whatever tax rates NY law has established.  Whether there is a separate tax on the sale of your property is a question for your local tax adviser.  You could download the NY instructions for preparing your state tax return which most likely answers these questions.

    The real estate agent fee is whatever you agree to in your listing agreement.  You will need to review your listing agreement for the answer to that question.  Most of the time, the agent's brokerage commission is deducted from the proceeds of sale at settlement.

    Yes, the sale of the property will be treated for tax purposes as two separate transactions:  (1)  the sale of a primary residence and (2) the sale of an investment property.  The allocation of sale proceeds will be in accordance with the percentage of the property you allocated to the rental unit when you set up your depreciation schedules.

    Whether you qualify for the capital gains exclusion on the sale of a primary residence depends upon two tests:  an ownership test and an occupancy test:  Did you own the property at least two years during the fives years prior to the sale?  Did you occupy the property as your primary residence at least two of the five years prior to the sale.  To qualify for the $500K exclusion, your spouse must have also occupied the property as her primary residence at least two of the five years prior to the sale.  If you originally acquired the property as the replacement property in a 1031 exchange, then there are additional qualifying tests.

    Unrecaptured depreciation is taxed at 25% on the amount of depreciation you should have taken on a 27.5 year straight line depreciation schedule.  If you took more depreciation than you should have, then the excess will be taxed as ordinary income at your marginal bracket rate.  

    Capital gain is taxed at the rate that applies to the bracket in which the capital gain is received. The maximum capital gain rate of 20% most likely applies to some portion of your taxable capital gain.

    Other questions...

    Purchasing an RV to use as your primary residence will most likely increase your usual income tax bite because you will have lower itemized deductions.  

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