Sold of my rental property

[YM2023]

My husband and I just sold our rental property after renting it out for 10 years. Our sources of income are my husband's SSI, his retirement, and my job, but our total income is less than $60k.  We purchased the rental property at $175k and sold it for $290k. Out of the $290k, we use $100k to pay the remainder mortgage. It's saying that we have to pay back about $40k in taxes to the Federal and $14k to the State.  Is that correct being our income is under $60k? Or did I enter something wrong?

[jtax]

That doesn't sound quite right. Here are a couple of things to help you figure it out.

First, you have to look at the forms to get anywhere. Look for example at 1040 line 7 for the total capital gain. Look at form 4797 also. Always useful to look at the depreciation asset lifetime worksheets related to the Schedule E. Perhaps most interesting is to look the "Qualified Dividend and Capital Gain Tax" or similar.

The amount you used for the mortgage has nothing to do with your capital gain. Your capital gain on the sale of rental property will be

your sales price minus the cost of sale minus your "adjusted basis" 

you adjusted basis is your purchase price (including capitalized expenses of the sale -- e.g. commissions, legal fees, etc., but not things like loan fees or insurance or pro-rated property taxes). plus improvements over the years - depreciation allowed or allowable.

Over 10 years you will have depreciated about 1/3 of the non-land costs.  What did you enter 10 years ago as the land value vs. the improvements value? Let's say $50k land value. So $125k building cost. Very rough estimate of $42k depreciation. Your adjusted basis might be close to 175 - 42 = 133.

That would make your gain roughly 290 - 133 = 157. Capital gains rates would be 15% for married filing jointly with taxable (not gross) income between $89k and $553k. So 15% of 157 = $23.5k (some might be taxed at 0% rate, so could be even less). https://www.fidelity.com/learning-center/smart-money/capital-gains-tax-rates

So $40k seems high. 

But you say "pay back" ... and that seems to be a total tax owed. You really need to look at the forms to determine how much your other income is taxed at. Looking at just the amount you owe doesn't help you understand the impact of the rental property sale by itself.

And the important thing is to make sure everything has been entered correctly so that there isn't a data entry mistake / question not answered that is costing you money.