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Need Help in Depreciation Recapture & Calculating Long Term Capital Gains for Investment Property Sale

Hello,

 

I purchased a condo in 2014 and lived there until mid-2018 when I converted it to a rental property.  I decided to sell the property in March 2022 when the tenant left.  My net profit is roughly is roughly $120K (Home sold for $310K after closing, and my cost basis was ~$190K) and I took about $24K in depreciation over the years.  Am I responsible to first pay a depreciation recapture tax of 25% on the $24K ($6K)?  And the LTCG tax of 15% on  ($310K - $190K - $24K) = $166K ($24,900) ?  Any other things I need to consider? Anything I missed or miscalculated?

 

Do I need to make a payment to the IRS? If so, how?  Title company told me to just file my income taxes next year to figure out how much I'll owe, but I think there will be penalties if I owe such a large amount??

 

Thanks in advance !

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Need Help in Depreciation Recapture & Calculating Long Term Capital Gains for Investment Property Sale

I purchased a condo in 2014 and lived there until mid-2018 when I converted it to a rental property.  I decided to sell the property in March 2022 when the tenant left.  My net profit is roughly is roughly $120K (Home sold for $310K after closing, and my cost basis was ~$190K) and I took about $24K in depreciation over the years.  Am I responsible to first pay a depreciation recapture tax of 25% on the $24K ($6K)? 

 

yes, depreciation recapture comes first. the 25% tax rate is a max. the tax you pay could be less.

 

And the LTCG tax of 15% on  ($310K - $190K - $24K) = $166K ($24,900) ?  Any other things I need to consider? Anything I missed or miscalculated?  the LTCG would be $120K because the other $24 is the 1250 portion

 

you do not qualify for the home sale exclusion because you only lived there about 1.25 years out of the 5 years before the sale. 2 years is required unless you sell for reasons of health, job change or unforeseen circumstances. the tax rate on the LTCG portion may be more or less than 15% it all depends on your tax situation for 2022. 

 

Do I need to make a payment to the IRS? If so, how?  Title company told me to just file my income taxes next year to figure out how much I'll owe, but I think there will be penalties if I owe such a large amount??

 

there may be ways to avoid penalties without paying in all your 2022 taxes

 

option 1: timely estimated tax payments and federal withholding taxes are 100% of 2021 taxes. (110% if your 2021 adjusted gross income was over $150,000

option 2;  timely estimated tax payments and federal withholding taxes are 90% of 2022 taxes.

 

if you have state income taxes the rules could be different.

 

so you get a better idea of where you stand, I would suggest contacting a tax pro to do a tax projection for 2022, you see if estimates are needed the first (25%) was due 4/18/2022.  their fees probably aren't deductible.

 

 

 

 

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Need Help in Depreciation Recapture & Calculating Long Term Capital Gains for Investment Property Sale

I purchased a condo in 2014 and lived there until mid-2018 when I converted it to a rental property.  I decided to sell the property in March 2022 when the tenant left.  My net profit is roughly is roughly $120K (Home sold for $310K after closing, and my cost basis was ~$190K) and I took about $24K in depreciation over the years.  Am I responsible to first pay a depreciation recapture tax of 25% on the $24K ($6K)? 

 

yes, depreciation recapture comes first. the 25% tax rate is a max. the tax you pay could be less.

 

And the LTCG tax of 15% on  ($310K - $190K - $24K) = $166K ($24,900) ?  Any other things I need to consider? Anything I missed or miscalculated?  the LTCG would be $120K because the other $24 is the 1250 portion

 

you do not qualify for the home sale exclusion because you only lived there about 1.25 years out of the 5 years before the sale. 2 years is required unless you sell for reasons of health, job change or unforeseen circumstances. the tax rate on the LTCG portion may be more or less than 15% it all depends on your tax situation for 2022. 

 

Do I need to make a payment to the IRS? If so, how?  Title company told me to just file my income taxes next year to figure out how much I'll owe, but I think there will be penalties if I owe such a large amount??

 

there may be ways to avoid penalties without paying in all your 2022 taxes

 

option 1: timely estimated tax payments and federal withholding taxes are 100% of 2021 taxes. (110% if your 2021 adjusted gross income was over $150,000

option 2;  timely estimated tax payments and federal withholding taxes are 90% of 2022 taxes.

 

if you have state income taxes the rules could be different.

 

so you get a better idea of where you stand, I would suggest contacting a tax pro to do a tax projection for 2022, you see if estimates are needed the first (25%) was due 4/18/2022.  their fees probably aren't deductible.

 

 

 

 

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