Tax treatment on sale of rental property


J

Jay Dunaway

I'm in Bakersfield where I own a building, which I'm turning
into condo. I am in a low tax bracket. Does anyone know
about Federal and California tax treatment on the gain I
will make? 28% fed and 9.3% state? Also, I took depreciation
on the property: Do I pay ordinary income on the full
depreciation or is it only on the amount of extra
depreciation I took? Does anyone know of a web site that has
a tax calculator for these kinds of things? I could not find
any. Thanks for the help
 
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A

Arthur L. Rubin

Jay said:
I'm in Bakersfield where I own a building, which I'm turning
into condo. I am in a low tax bracket. Does anyone know
about Federal and California tax treatment on the gain I
will make? 28% fed and 9.3% state? Also, I took depreciation
on the property: Do I pay ordinary income on the full
depreciation or is it only on the amount of extra
depreciation I took? Does anyone know of a web site that has
a tax calculator for these kinds of things? I could not find
any. Thanks for the help
I think you're asking the wrong questions, to the
point I would suggest that you use a tax advisor. But....

"Unrecaptured section 1250 deductions" (depreciation on
real property) is taxed at at most 25%. Other depreciation
may be recaptured, in part, as ordinary income. Other
capital gains are taxed at at most 15%.

Calfornia has no difference between taxation of capital
gains and ordinary income, so it will be taxed at
at most 9.3% (more if a certain proposition on the
November ballot passes -- I don't recall whether that
proposition is retroactive).
 
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A

Arthur Kamlet

Jay Dunaway said:
I'm in Bakersfield where I own a building, which I'm turning
into condo. I am in a low tax bracket. Does anyone know
about Federal and California tax treatment on the gain I
will make? 28% fed and 9.3% state? Also, I took depreciation
on the property: Do I pay ordinary income on the full
depreciation or is it only on the amount of extra
depreciation I took? Does anyone know of a web site that has
a tax calculator for these kinds of things? I could not find
any. Thanks for the help
You didn't say what you are using the building for now, but
I assume it's for some trade or busines use. Perhaps you
have been using it as a wareouse?

If so, you have an adjusted cost basis in that property,
which is its cost plus capital improvements less
depreciation expense allowed or alowable.

Now you are converting to a condo, which is residential
rental, and subject to another depreciation schedule, likely
27.5 year.

The coversion of you property from commercial to
residential, assuming, this what is happening, does not by
itself generate taxable gain.

Rather, your depreciation expense for the condo complex
changes, but is based on the lower of your adjustd basis or
FMV on date you convert to condo rentals. I assume the
adjusted basis is lower.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 

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