Vacation Rental Home Sale

[Anonymous]

I sold my second/vacation home that I had used as a rental.  I already think the proceeds (gain) will be considered LT capital gains and are taxable. My questions is: Is it true that if you are in the bottom two tax brackets there is zero capital gain tax? And do the proceeds from the sale count towards your income for the year? I am filing married jointly for 2018. Thanks

[PaulaM]

Yes, the long-term capital gains tax rate for the tax brackets 10% and 15% is zero. However, you will have depreciation recapture on the rental property at a rate of 25%. You can get an idea of the taxes that your may owe by using a calculator tool with the depreciation recapture. Listed below is one calculator, but you can search for others. Enter data through step 3 in the calculator.

Capital Gains Calculator with Depreciation Recapture

[Anonymous]

Thanks for reply. What if I did not depreciate the property over the 3 years I used it as a rental. I bought in 2009 as primary. Starting renting as vacation rental December 2015. And sold March 30, 2018. Isn't that calculator for figuring deferred taxes if you do a 1031 exchange? I will be within the bottom 2 tax brackets for 2018. Also, is the amount of my gain, counted towards figuring my annual income?

[PaulaM]

The calculator was just to show you how recapture works. Completing through step 3 is all that you needed to do. Depreciation is recaptured whether you took the deduction or not. These are IRS rules, so if you did not take the depreciation deduction, you might consider amending your prior year returns to do so. Yes, your gain counts toward your total income on your tax return. It's added in on line 13 of your 1040.