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Subject Author Date
Sale of Rental Property - Help... Daniel 03-19-2007
Posted by DORFMONT@aol.com (Linda Dorfmo on March 23, 2007, 6:31 am
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>> I'm going to sell my triplex and will net 600k after selling
>> expenses. The basis is 400k so I'm looking at a 200k long
>> term gain and will get 200k at closing. I have never resided
>> at this property.
>>
>> I will buy a duplex for 300k to replace it. Is there any
>> way to defer the (15% x 200k) tax on gain? I may reside at
>> this new property.
>>
>> I am presuming that the tax bracket that determines your LT
>> cap gains rate is derived inclusive of the gain itself not
>> before it. Correct?

> First of all, when you sell rental property, there will
> likely be depreciation recapture taxed as ordinary income.
> So, its not likely to be all LTCG.
>
> One thing you may want to look into is a like kind exchange.
> But, I don't know if you plan to live in the newly acquired
> property if it would qualify for a like kind exchange. You
> need to consult an expert in that field.

The property currently qualifies for a 1031 exchange but not
all the gain can be deferred. Pushing $600K into $300K will
leave some exposure to boot (taxable), especially with
mortgage relief not bought off with additional cash. The new
property (which has already been identified) needs to close
within 180 days of the close of the old one being sold. Then
you must operate it as a rental for at least 2 tax years to
show rental intent. You "may" move into it later but you
must hold it for at least 5 years before being able to use
the homeowner's exemption $250/$500K when you sell. Please
contact a 1031 specialist at a qualified intermediary firm
for specific advice.

Linda Dorfmont E.A., CFP, CSA

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Posted by Shyster1040 on March 25, 2007, 12:26 pm
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> I am presuming that the tax bracket that determines your
> LT cap gains rate is derived inclusive of the gain itself
> not before it. Correct?""

No, that's not correct. Under Sec. 1(h) you get the benefit
of the lower of the regular tax or the tax figured based on
capital gains. The way the tax based on capital gains is
figured, it is essentially the sum of the regular tax on
your taxable income, less your net capital gain, plus 5% (0%
for 2007) of the amount of adjusted net capital gain that is
less than, or equal to, the (positive) difference between
the threshhold amount for the 25% marginal rate bracket
($31,850 for 2007) and your non-capital-gain income, plus
15% of remaining adjusted net capital gain, with some
additional little rate brackets for specific items like Sec.
1250 recapture income, collectibles, etc.

Thus, whether the lowest rate at which your capital gain is
taxed is 5%/0%, or 15%, depends on the amount of
non-capital-gain income you have, not on the total amount of
your income, or, in other words, the rate is determined
exclusive of your capital gains, not inclusive.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Seth Breidbart on March 26, 2007, 11:35 am
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> Thus, whether the lowest rate at which your capital gain is
> taxed is 5%/0%, or 15%, depends on the amount of
> non-capital-gain income you have, not on the total amount of
> your income, or, in other words, the rate is determined
> exclusive of your capital gains, not inclusive.

But that's only the lowest rate, on (part of) the capital
gain.

Somebody with $0 ordinary income, plus $10,000,000 capital
gain, is only going to be in the 0% bracket for a bit of the
gain. (Otherwise it would pay to quit your job in the year
you sell all your Google stock and original-issue
Microsoft.)

Seth

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by DORFMONT@aol.com (Linda Dorfmo on March 26, 2007, 11:35 am
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>> I am presuming that the tax bracket that determines your
>> LT cap gains rate is derived inclusive of the gain itself
>> not before it. Correct?""

> No, that's not correct. =A0Under Sec. 1(h) you get the benefit
> of the lower of the regular tax or the tax figured based on
> capital gains. =A0The way the tax based on capital gains is
> figured, it is essentially the sum of the regular tax on
> your taxable income, less your net capital gain, plus 5% (0%
> for 2007) of the amount of adjusted net capital gain that is
> less than, or equal to, the (positive) difference between
> the threshhold amount for the 25% marginal rate bracket
> ($31,850 for 2007) and your non-capital-gain income, plus
> 15% of remaining adjusted net capital gain, with some
> additional little rate brackets for specific items like Sec.
> 1250 recapture income, collectibles, etc.
>
> Thus, whether the lowest rate at which your capital gain is
> taxed is 5%/0%, or 15%, depends on the amount of
> non-capital-gain income you have, not on the total amount of
> your income, or, in other words, the rate is determined
> exclusive of your capital gains, not inclusive.

And if you can do all that, thank an industrial engineer who
designed the worksheets and forms to get you through it one
step at a time.

Linda Dorfmont E.A., CFP, CSA
Fellow, Institute of Industrial Engineers.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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