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FED INCOME TAXES / Capital Gains Tax on Investment Property

September 28, 2011

Long-term capital gains (held more than 12 months) are taxed at a maximum rate of 15 % ( 5% for persons in the 15% tax bracket).

CAUTION: When investment property is sold, depreciation taken during the holding period is “recaptured” & taxed at 25 %.

  • Assume an apartment bldg. purchased nine years ago for $300,000.
  • The building represented 80% of the total.
  • The property is sold this year for $510,000 with selling costs of $10,000.
  • Depreciation, using a 27½-year life, is approximately $78,545 ($300,000 × 80% ÷ 27.5 = 9 years).

What is the tax liability?

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