no capital gain tax on sale of rental house if income below $40K?

[Anonymous]

no capital gain tax on sale of rental house if income below $40K?  Is this true?  Capital gain is around $200K.

https://www.investopedia.com/ask/answers/052015/what-difference-between-income-tax-and-capital-gains....

What Is the Income Threshold for Capital Gains Tax?
For the 2021 tax year, individual filers won’t pay capital gains tax if their total taxable income is $40,400 or less.
For 2022 returns, that threshold rises to $41,675.

[tagteam]

How long have you owned this particular rental house and have you been taking depreciation deductions?

Regardless, of capital gains tax, you most likely have unrecaptured Section 1250 gain (i.e., depreciation recapture) which is taxed at your ordinary income tax rate up to a maximum of 25%.

[TomD8]

Be aware that you must include the capital gain itself in the "total taxable income" on which the capital gain brackets are based.

This web reference has an online calculator that will allow you to figure your capital gain tax:

https://casaplorer.com/capital-gains-tax-calculator

[Anonymous]

Owned 23 years.  Rental the last 7 years.

Yes, have taken depreciation the last 7.

[Anonymous]

TomD8: Thank you!!  Was not aware of that.

[Anonymous]

but the calculator does not account for the depreciation.

[TomD8]

No, the calculator just figures your capital gain tax.

[Anonymous]

TomD8: so if the person's income is $8800 and the capital gain on the sale of a rental house is $100K, does that mean the tax bracket will be for $108,800 income?? ouch!

[tagteam · Accepted solution]

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@Anonymous wrote:

......if the person's income is $8800 and the capital gain on the sale of a rental house is $100K, does that mean the tax bracket will be for $108,800 income??

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Yes, in that scenario your AGI would be $108,800 from which you would subtract your standard (itemized) deduction to arrive at your taxable income which, as @TomD8 mentioned, is the figure on which the capital gain tax brackets are based.

[note that there will be a depreciation recapture component in the foregoing calculation]

[Anonymous]

>>>[note that there will be a depreciation recapture component in the foregoing calculation]<<<

Does that mean that the depreciation amount (let's say $4,000) gets added to the $108,800 ?

[tagteam]

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@Anonymous wrote:

>>>[note that there will be a depreciation recapture component in the foregoing calculation]<<<

Does that mean that the depreciation amount (let's say $4,000) gets added to the $108,800 ?

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No, the recapture amount simply is taxed at a different rate (your ordinary income tax rate up to a maximum of 25%).