Unsure about Ca capital gains tax.
Bought a duplex 13 yrs ago for $237,500 but haven't lived in it for the last 6 yrs. want to list for $350,000. Will I be paying capital gain tax federally and through Ca?
I am married and file jointly. Our last years taxable income was a low of roughly $40,000 since we started a business.
Based on my general calculation (not including deductions to make it easier for my understanding) we'll gain $112,500.
Are we paying capital gains tax based on the $40,000 bracket (0%) or are getting taxed on the $40,000+112,500 (15%)?
We are looking to reinvest some gains (probably $65,000) into our business not related to real estate.
When do we pay the taxes? At tax time or when we get the $?
Thanks in advanced.
@Yern Chao Your gain would be calculated by using the following formula:
Sale price - selling costs - basis = gain
Basis would be calculated as follows (simplified):
Purchase price + improvements - accumulated depreciation = basis
There are other factors that contribute to total basis, such as closing costs, expenses prior to placing the property in service, other assets, etc. but we will use the above formula for the sake of simplicity.
With that said, your basis is likely not $237,500. Once you figure out your basis, you will be able to calculate your gain. Once you have your gain, you will then have to split it between capital gain and unrecaptured Sec. 1250 gain (assuming it was a rental at some point).
Recaptured depreciation is taxed up to 25% and capital gains are taxed up to 20% (not including NIIT).
Your taxable income inclusive of your gains determines which capital gains rate you will pay. So, if your income is $40k and your total gain on the sale is $150k, your income is $190k and you will be paying 15% federal tax on the portion of the gain that is considered long-term capital gain.
California does not have lower tax rates for long-term capital gains - you will be taxed at your ordinary state tax rate at the state level.
You normally pay tax upon filing but if the sale generates a requirement for you to make estimated tax payments, you should do that. These are paid quarterly - you should discuss with your CPA what amounts should be paid at what time based on your situation.
I wouldn't recommend reinvesting any of the money until you do that so as to not put yourself in a position of having a high tax bill and no cash on hand to pay it when you file your returns.
Thank you for all the information. Not sure if we will qualify for partial exemption since we did spend 3 summers in the home in the last 5 years. We also did extensive renovations so we will definitely have to consult a CPA.
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