Quick! Capital Gains Tax Rate???

[H-man]

I'm sure it's not this easy, but didn't "W" and the boys set a fixed rate for capital gains tax? Like if someone sold some land and didn't re-invest in real estate what would the tax rate be?

Thanks in advance!

[GoldMember]

Depends on how long you've had it. If you hold it for (I believe) 18 months, the rate is 15%. If you've had it less than that, it's a higher rate. Also, with real estate, there's a one-time exemption from the tax. But use the exemption wisely, just in case the rate goes up some time in the future and you have a much bigger gain that you'd like to shelter.

[Buster Highmen]

http://www.bankrate.com/yho/itax/tips/20010305a.asp

Tax-law changes in May 2003, however, lowered the rates by 5 percent each. Most investors, which generally means folks in the higher income ranges, now find their capital gains taxed at 15 percent. Taxpayers in lower income brackets pay only 5 percent on most investment earnings.

[Buster Highmen]

The period for holding long term assets for cap gains exemption is 366 days, not 18 months.

[Nobody Famous]

http://www.irs.gov/taxtopics/tc409.html

[GoldMember]

The period for holding long term assets for cap gains exemption is 366 days, not 18 months.

Thanks, I couldn't remember for sure.

[meatdrink9]

So what's the rate if you hold it for only a couple of months? That one time exemption sounds pretty tasty as well if it's purely an investment. I think you can get around capital gains completely if you've lived in the home for 2 of the last 5 years.

[Dexter Rutecki]

You only need to hold it for one year to be long term, otherwise it's taxed at the usual rate.
oops, Buster already said that. I guess the max. is 35%?

[GoldMember]

You only need to hold it for one year to be long term, otherwise it's taxed at the usual rate.
oops, Buster already said that. I guess the max. is 35%?

That's correct. Less than one year and it counts as ordinary income and 35% is the highest marginal rate. The further penalty though is if your ordinary income exceeds certain levels, you have to discount your Schedule A deductions so the effective tax rate is even higher.

WTF? I can't believe we're having a tax seminar on a ski thread....

[bc]

No change to the primary residence / $250k free though, right?

[RootSkier]

Yep, but must be your primary residence two of the last fiive years. You can do it every two years.

$500K/couple.

[GoldMember]

^^ Don't know on that. You'd probably want to ask a tax accountant about all the variables, especially with real estate.

[Trackhead]

Good thread timing, as I'm selling 2.34 acres at Bear Lake right now.

Anyone wanna buy it, it's the shizzle.

[Pow4Brains]

Yep, but must be your primary residence two of the last fiive years. You can do it every two years.

$500K/couple.

My neighbor is making a mint by this……….build house for 1 year, live in for 1 year and sell. Last I heard he was pulling down about 200k per house with no cap gains tax?????
Why do I work for the man

[meatdrink9]

It sounds like the key to pulling down a lot of money in under a year is to then roll it into another property or use that one time exemption.

[splat]

I don't know, but I'm gonna tell Greg up at Capital Skis that 'Gains' would be a great name for his next ski.

[Pow4Brains]

I don't know, but I'm gonna tell Greg up at Capital Skis that 'Gains' would be a great name for his next ski.

Especially if it’s a phatty.

[truth]

It sounds like the key to pulling down a lot of money in under a year is to then roll it into another property or use that one time exemption.

The one time exempiton traditionallyis saved until right before retirement and used on the sale of a primary residence of (20+ years) a long time period. Hopefully this nets you the greatest appreciation and thus the greatest tax savings.

[Cono Este]

I think if you have a legitimate job transfer, you can write off part of that 250k even if you have been in the home less than 2 yrs.

If you can pull it off, buy a rental/fixer upper you will live in down the road. Then just keep rolling out of you primary into a rental. Its 2 out of every 5 yrs. Beats working.

[sea2ski]

Also if you do major renovations to a house your improvements are deductable against the capital gains. There is a limit on the total dollars deductable per year but every little bit helps.

[UTdave]

Depends on how long you've had it. If you hold it for (I believe) 18 months, the rate is 15%. If you've had it less than that, it's a higher rate. Also, with real estate, there's a one-time exemption from the tax. But use the exemption wisely, just in case the rate goes up some time in the future and you have a much bigger gain that you'd like to shelter.

All wrong. There is no "one time exemption," the period for LTCG is year + 1 day. Capital gains rates are either 5% or 15% depending on your tax bracket (with any sizeable gain it will definitely be 15%). I think that goldmember is referring to the personal residence exemption where if married filing jointly and you've lived in your house 2 out of the last 5 years you can exclude up to 500k of gain (ie no tax if you buy+improvements=250k and sell=750k) the exclusion is 250k for single taxpayers. Additionally, if you live in it for less than 2 years you might be able to get a pro-rated exclusion the if: you are moving to a new job 50+(general guideline not strict) miles away or for "unforeseen circumstances" (ie lose job, tragic accidents, and more commonly high medical bills).

Short term capital gains are taxed at ordinary income tax rates. Also with real estate you need to be careful, especially if you're doing "flips" because those generally do not qualify for capital gains treatment and may even be subject to self-employment taxes.

Renovations to a house are not "deductible." They are an increase to your basis which is the number you subtract from the sales price(net of selling expenses) to come up with your gain. To the best of my knowledge there are no annual limits to this but it rarely comes up because of the size of the exclusion makes it generally irrelevent (I've only seen one case where we even needed to be concerned enough to add up the improvements to get under the exclusion).

Rolling the gain into another property is called a 1031 exchange (like-kind exchange). They are fairly technical so you are required to use a qualified intermediary (and please don't use a title company they screw up more 1031s than any other QIs - also difinitely talk to your CPA or tax attorney so you don't screw it up). Generally, in a 1031 you have investment property (rental or other real property you've owned for investment) that you expect to have a large gain on, you sell it and the funds go into escrow which you then use to buy replacement investment property of value equal to or more $ than the sold property. Your basis in the new property = basis in the old + any new money you kick in. Therefore, the tax is deferred until you make a disposition w/o doing a 1031. These need to be done with care and with proper guidance from a CPA or tax attorney. Without that you risk having a failed 1031. If you screw up a 1031, you risk having already used the proceeds for new property then unexpectedly having to pay the tax on the gain when you've already spent the money on the new property(in short you're fucked).

Edit: YOu also need to pay state taxes on your gains. Those vary. In Utah you'd pay an additional 7% on top of the federal rate and there is no distinction for long term gains or short term gains. Utah does respect the personal residence exclusion, but I can't say that every state does or that any don't because I haven't dealt with more than about 15 states and not with this issue on all of those.

[meatdrink9]

The one time exempiton traditionallyis saved until right before retirement and used on the sale of a primary residence of (20+ years) a long time period. Hopefully this nets you the greatest appreciation and thus the greatest tax savings.

As far as I know if you've lived in the house for 2 of last 5 years you're already exempt. It sounds like this other option is better for an investment or someone who has to move in under a year or two.

[UTdave]

As far as I know if you've lived in the house for 2 of last 5 years you're already exempt. It sounds like this other option is better for an investment or someone who has to move in under a year or two.

This other option of a one time break doesn't exist. If it's your primary residence you get the principal residence gain exlcusion if not nothing unless you want to do a 1031 (which only defers the gain & tax).

[smmokan]

So... to make this simple: Say I bought a house in 2000 for $100,000. This year I sell it for $300,000, making a profit of $200k. How much would I be taxed, assuming I'm in a normal tax bracket? Is it just the 15% cap gains tax?

[smmokan]

So... to make this simple: Say I bought a house in 2000 for $100,000. This year I sell it for $300,000, making a profit of $200k. How much would I be taxed, assuming I'm in a normal tax bracket? Is it just the 15% cap gains tax?